The current trend in Bitcoin’s MVRV ratio suggests that the ongoing rally in the price of the cryptocurrency may have room to grow further.
Bitcoin MVRV ratio has yet to reach its 4-year MA
As noted by an analyst in a CryptoQuant mail, the recovery phase in the asset price has not yet ended. The ratio “Market Value to Realized Value” (MVRV) is an indicator that measures the relationship between the market capitalization of Bitcoin and the realized capitalization.
“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 circulating supply as the price at which it last moved on the blockchain.
This metric aims to find a “fair value” for the cryptocurrency. Since the MVRV ratio compares market capitalization (i.e., normal price) to realized capitalization, the indicator can provide clues 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 capitalization is greater than the realized capitalization at the moment. Such a trend suggests that the currency may be overvaluing. On the other hand, metric values below this threshold imply that the cryptocurrency may be currently undervalued.
Now, here’s a chart showing the trend in this Bitcoin indicator, as well as its 4-year moving average (MA), over the past several years:
The value of the metric seems to have been going up in recent days | Source: CryptoQuant
As shown in the chart above, the Bitcoin MVRV ratio had been below the 1 mark for much of the current cycle bear market, until the rally began in January of this year.
The rise brought the market capitalization above the realized capitalization and has not, so far, fallen back below it as the price of the cryptocurrency has continued to see bullish momentum.
There was a close call last month where a price reversal nearly pushed the MVRV ratio into the undervalued zone again, but the 1 level provided support for the indicator.
One line that the quant in the post believes to have historical relevance for Bitcoin is the 4-year MA of the MVRV ratio. On the chart, it is evident that the price crossed above this mark during the recovery phases that followed the last two bear markets.
According to the analyst, the metric’s 4-Year MA 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 a strong uptrend recently, the indicator is still nowhere near the 4-year MA line. If past cycles are anything to go by, then the recovery phase that BTC is seeing 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 it finally tops out.
Bitcoin 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
