The current trend in the Bitcoin MVRV ratio suggests the ongoing rally in the cryptocurrency’s price may have room to grow further still.
Bitcoin MVRV Ratio Hasn’t Yet Reached Its 4-Year MA
As pointed out by an analyst in a CryptoQuant post, the recovery phase in the asset’s price isn’t over yet. The “Market Value to Realized Value” (MVRV) ratio is an indicator that measures the ratio between the Bitcoin market cap and realized cap.
The “realized cap” here refers to a capitalization model for BTC that measures the total cap of the asset by taking the value of each coin in the circulating supply as the price at which it was last moved on the blockchain.
This metric aims to find a “fair value” for the cryptocurrency. Since the MVRV ratio compares the market cap (that is, the normal price) with the realized cap, the indicator can provide hints about whether the asset is overvalued or undervalued currently.
When the value of the MVRV ratio is greater than one, it means the market cap is larger than the realized cap right now. Such a trend suggests that the coin may be becoming overpriced. On the other hand, values of the metric lower than this threshold imply the cryptocurrency may be undervalued currently.
Now, here is a chart that shows the trend in this Bitcoin indicator, as well as in its 4-year moving average (MA), over the last few years:
The value of the metric seems to have been going up in recent days | Source: CryptoQuant
As shown in the above graph, 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 started.
The surge took the market cap above the realized cap, and so far, it hasn’t fallen below it again, as the cryptocurrency’s price has continued to observe bullish momentum.
There was a close call last month where a setback in the price almost took the MVRV ratio into the undervalued zone again, but the 1 level provided support to the indicator.
A 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’s apparent 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 a breakout of this range 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 some sharp uptrend recently, the indicator is still not near the 4-year MA line. If the past cycles are anything to go by, then the recovery phase that BTC is observing right now may also lead to a cross above this level. This would suggest that the current rally may have more potential to grow before the top is eventually hit.
At the time of writing, Bitcoin is trading around $28,300, up 1% in the last 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