After 216 days, the Bitcoin Market Value to Realized Value (MVRV) ratio And last but not least broke above 1, making this accumulation the second longest after it took 300 days for BTC prices to bottom out after the 2014-2015 bear run. It also indicates the likelihood of another refreshing BTC rally after last week’s gains.
Bitcoin’s MVRV breaks above 1
The breakout coincided with the rise in BTC prices to $23,300 on Saturday, January 21, a positive development especially for bullish holders.
At the time of writing on January 22, prices have cooled and the coin is hovering around $22,700, albeit with relatively low trading volumes. Still, the retracement places BTC within a bullish formation after impressive gains on Jan. 20 as the coin pushed higher, defying gravity and confirming demand.
The MVRV ratio changes depending on Bitcoin market forces. The prevailing sentiment is that BTC is bottoming out. Bulls could be preparing for another leg, injecting much-needed volatility and volatility into the crypto markets. However, the lack of a confirmatory indicator posed problems.
Technical and fundamental analysts can use the MVRV ratio to time market entry and exit. When the MVRV ratio is less than 1, it generally means that prices are at their lowest point.
Any reversal from sub-1 to above 1 with rising valuation could indicate price bottoms and possibly more room for upside in the coming days. This signal could be a precursor to guiding swing and long-term traders to hold onto their long positions and wait for more profit before exiting once BTC becomes overvalued based on on-chain readings.
Conversely, historical values show that when the MVRV exceeds 3.7, there is a real chance that the Bitcoin market will overheat. Then it could be the best time to stop and take profits.
Shifting Bitcoin Sentiment
The MVRV ratio is dynamic and changes depending on the fluctuating valuation of BTC. At any point in time, the MVRV ratio is calculated by dividing the market value and realized value of bitcoin. Market value measures prevailing sentiment among holders, which, as history shows, changes depending on spot prices.
Meanwhile, the realized value takes into account the actual expenditure of each coin. When calculating the realized value, the acquisition cost of each coin in question is taken into account. If the MVRV ratio is below 1, most holders will incur losses as coins are sold.
The more the MVRV ratio rises, the more holders and traders will be willing to sell as they get more in the money. Subsequently, the ratio is a good gauge to determine whether BTC is overvalued or undervalued in the short, medium or long term.
Streams from IntoTheBlock show that on average 62% of BTC holders make money while 36% lose money.
Feature image by Freepik, chart by TradingView