Bitcoin MVRV At Critical Level: Will A Break Happen?

On-chain data shows the Bitcoin “Market Value to Realized Value” (MVRV) is at a critical level currently. Will a bullish breakout take place?

Bitcoin MVRV Ratio Is Retesting The 1.5 Level Right Now

As pointed out by an analyst in a CryptoQuant post, the BTC MVRV ratio has been around a critical level recently. The “MVRV ratio” is an indicator that measures the ratio between the market cap of Bitcoin and its realized cap.

The “realized cap” here refers to a capitalization model for the asset that assumes that the true value of each coin in the circulating supply is not the current spot price, but the price at which the coin was last transferred on the blockchain.

This model aims to find a sort of “real value” for the coin, so its comparison with the market cap in the MVRV ratio can tell us how the current spot price (that is, the market cap) weighs up against this fair value.

When the indicator has a value greater than one, it means that the market cap is more than the realized cap right now. In this situation, the investors are holding more value than they put in, so they become more likely to sell and harvest these profits. Thus, this kind of trend can suggest the asset is becoming overpriced and a correction may be on the horizon.

On the other hand, low values imply the market cap of the cryptocurrency may be undervalued at the moment as the average investor is holding their coins at a loss.

Now, here is a chart that shows the trend in the Bitcoin MVRV ratio over the last few years:

Looks like the value of the metric has gone up recently | Source: CryptoQuant

As displayed in the above graph, the Bitcoin MVRV ratio had been below the one mark back during most of the second half of 2022. This isn’t an unusual trend, as bearish periods normally see investors going into deep losses, which naturally results in the indicator’s value plunging.

What’s interesting, though, is the metric’s interaction with the line where its value becomes 1. While bearish trends last, the level usually provides resistance to the asset. Examples of this happening during the past year’s bear market can be seen in the chart.

With the rally this year, however, Bitcoin was able to break past this level, implying that a transition toward a bullish regime had occurred. The indicator briefly dropped to this level in March, but the line provided support to it, confirming that a bullish trend was indeed active.

The MVRV ratio has now recently surged towards the 1.5 level, at which the market cap is 50% more than the realized cap. At these values, the asset naturally starts becoming overpriced and the risk of corrections goes up.

From the graph, it’s visible that the coin found resistance at this 1.5 level when it was retested back in April. Since surging back toward it recently, the cryptocurrency has been moving sideways around this level so far.

It now remains to be seen whether the Bitcoin MVRV ratio can break through this level with the current retest, or if it will end up facing another rejection. Naturally, if it’s the former, the rally might be able to continue.

BTC Price

At the time of writing, Bitcoin is trading around $30,500, down 2% in the last week.

BTC's price action continues to be stale | Source: BTCUSD on TradingView

Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com