A quant has broken down how to use the Bitcoin MVRV MACD oscillator to monitor for signals in the price.
Bitcoin MVRV MACD oscillator as a price indicator
As explained by an analyst in a CryptoQuant after, this metric can help detect both the lows and highs in the price, as well as the larger trends. The “Bitcoin MVRV” is an indicator that measures the ratio between the market capitalization and the realized cap.
Here the “realized capis a capitalization model for BTC that values each coin in circulation at the price at which it last moved, rather than taking the same current BTC price as the value of all coins, as normal market capitalization does.
Since the realized limit is a kind of “real” value model for the coin, the comparison with the market cap (in the MVRV) can tell us whether the coin is currently undervalued or overvalued. When the MVRV is greater than 1, it means that BTC is currently overpriced, while readings below the threshold suggest that it is underpriced.
Now, to use MVRV as a trading tool, the quant needs the MACD oscillator of the indicator. A MACD oscillator is just the difference between the short- and long-term exponential moving averages (EMA) of the metric in question. Here these EMAs are the 50-day and the 100-day versions.
The chart below shows how the Bitcoin MVRV MACD can be used to find highs and lows in the price:
The metric seems to have approached a value of 0 recently | Source: CryptoQuant
According to the quantity, when the MVRV MACD was above 0.3, it was a signal that BTC is currently overbought. On the other hand, values below -0.3 indicate underbought conditions.
The graph shows that although these signals did not coincide with the tops and bottoms of the cycle, they still correctly indicated some local tops and bottoms.
Now, here’s another chart where the analyst highlighted how differences between the price and the MVRV MACD can signal future trends:
Various divergences between BTC and the MVRV MACD | Source: CryptoQuant
“A divergence occurs when the direction of a technical indicator and the direction of the price trend move in opposite directions,” the analyst explains. The chart shows that when the MVRV MACD has risen within the negative area while the price is consolidating or falling sideways, a bullish divergence has developed for Bitcoin.
Similarly, a bearish divergence has taken shape as the value of the crypto rose, but the indicator fell into the above-zero zone. At present, none of these signals have formed in the current bear market until now.
BTC price
At the time of writing, Bitcoin is trading around $16,800, up 1% over the past week.
Looks like BTC has stagnated after the rise yesterday | Source: BTCUSD on TradingView
Featured image by André François McKenzie on Unsplash.com, Charts from TradingView.com, CryptoQuant.com