Bitcoin MVRV suggests rally may have more room to grow
The current trend in the Bitcoin MVRV ratio suggests that the ongoing rally in the cryptocurrency’s price may have room to grow further.
Bitcoin MVRV ratio has not yet reached its 4-year MA
As pointed out by an analyst in a CryptoQuant post, the recovery phase in the asset’s price is not over yet. The “Market Value to Realized Value” (MVRV) ratio is an indicator that measures the relationship between Bitcoin’s market value and realized cap.
The “realized cap” here refers to a capitalization model for BTC that measures the total value of the asset by taking the value of each coin in its circulating supply as the price at which it was last moved on the blockchain.
This calculation aims to find a “real value” for the cryptocurrency. Since the MVRV ratio compares the market value (that is, the normal price) with the realized value, the indicator can give hints as to whether the asset is currently overvalued or undervalued.
When the value of the MVRV ratio is greater than one, it means that the market value is greater than the realized value right now. Such a trend suggests that the coin may be overpriced. On the other hand, values of the metric lower than this threshold suggest that the cryptocurrency may be currently undervalued.
Now, here is a chart showing the trend of this Bitcoin indicator, as well as of its 4-year moving average (MA), over the past few years:
The value of the metric seems to have been going up in recent days | Source: CryptoQuant
As shown in the graph above, the Bitcoin MVRV ratio had been below the 1 mark for much of the current cycle’s bear market, until the rally in January of this year began.
The increase took the market cap above the realized rate and so far has not fallen below it again as the cryptocurrency’s price has continued to observe bullish momentum.
There was a close call last month where a pullback in price almost took the MVRV ratio back into the undervalued zone, but the 1 level provided support for the indicator.
One line that the quant in the post believes has historical relevance for Bitcoin is the MVRV ratio’s 4-year MA. From the chart, it is clear that the price crossed above this mark during the recovery phases that followed the last two bear markets.
According to the analyst, the 4-year MA of the metric “can act as an important point between bearish, recovery and bullish cycles, with an outbreak of this area during the recovery phase often leading to short-term overheating followed by a correction period before entering a bullish phase.”
While the MVRV ratio has seen a sharp uptrend recently, the indicator is still nowhere near the 4-year MA line. If the recent cycles are anything to go by, the recovery phase that BTC is observing right now could also lead to a cross above this level. This suggests that the current rally may have more potential to grow before the top is finally hit.
BTC price
At the time of writing, Bitcoin is trading around $28,300, up 1% in the past week.
Looks like BTC has gone stale recently | Source: BTCUSD on TradingView
Featured image from Thought Catalog on Unsplash.com, Charts from TradingView.com, CryptoQuant.com
