Bitcoin MVRV ratio approaches 1.5 level, will break happen?
On-chain data shows that the Bitcoin MVRV ratio is approaching a retest of the 1.5 level, breaking above something that could be bullish for the asset’s price.
Bitcoin MVRV ratio has gone up in recent days
As explained by an analyst in a CryptoQuant post, the 1.5 level of the metric has had significant significance in the past. The “MVRV ratio” is an indicator that measures the ratio of the market value of Bitcoin to its realized cap.
The “realized cap” here refers to a capitalization model for BTC that assumes that each coin in the circulating supply has its real value equal to the price at which it was last moved or transferred to the blockchain.
Since the MVRV ratio compares the market value (that is, the normal price of BTC) to this fair value model, the value of the ratio can give hints as to whether BTC is currently appropriately valued or not.
When the value of the indicator is higher than one, it means that the asset’s market value is greater than the realized value right now. Such a trend may imply that the cryptocurrency may be currently overvalued.
On the other hand, the calculation with values below this threshold suggests that the real value of BTC is above the current price, and therefore the coin may be currently undervalued.
Now, here is a chart showing the trend of the Bitcoin MVRV ratio over the last few years:
Looks like the value of the metric has observed a rapid rise recently | Source: CryptoQuant
As you can see in the graph above, the quant has highlighted the relevant parts of the trend for the Bitcoin MVRV ratio. The region below 1, as mentioned earlier, is the undervalued zone where bottoms have historically formed for the coin. However, cyclic peaks have not usually formed in the zone above 1, but rather at much higher values such as 3 or more.
After the covid crash back in 2020, MVRV bounced out of the underpriced region and showed constant upward momentum, until it reached higher than 3.75, and the top of the bull run in the first half of 2021 was formed.
After that, in the mini-bear period of May-July 2021, the indicator took a step and hit a value of around 1.5. However, the level provided support to the metric and helped it make a sharp recovery, which eventually culminated in the highest Bitcoin price in November 2021.
As the transition to the bear market began to take place, the MVRV ratio plunged to the 1.5 level again, but the line once again helped the indicator to hold.
However, this time, after moving sideways around the level, the indicator finally plunged below it as the market crashed due to the LUNA collapse.
The decline also continued later with the Three Arrows Capital (3AC) collapse, and the metric found itself inside the undervalued region again. The ratio spent some time in this zone until the last rally came and finally pulled out from there. This flight across the region may suggest that at least the worst of the bear market may be over for now.
With the sharp increase in BTC recently, the MVRV ratio has also naturally continued to rise and is now approaching the 1.5 level which it has seen several times over the past few years.
It is possible that the coin could find resistance here and be rejected back down. However, Quant believes that if a break occurs here, Bitcoin may be able to maintain its bullish momentum.
BTC price
At the time of writing, Bitcoin is trading around $28,600, up 4% in the last week.
BTC has sharply gone up over the last two days | Source: BTCUSD on TradingView
Featured image from Dmitry Demidko at Unsplash.com, Charts from TradingView.com, CryptoQuant.com
