On-chain data shows that bitcoin has recently surpassed a market value to realized value ratio (MVRV) level that has historically signaled overheating conditions.
bitcoin has surpassed the highest deviation price band of MVRV
In its latest weekly report, the on-chain analysis firm glass node has discussed what bitcoin looks like right now from the perspective of a pricing model based on the MVRV index.
The MVRV index is a popular btc indicator that tracks the relationship between the asset's market capitalization and its realized capitalization. The latter is an on-chain capitalization model that, in short, tells us about the amount of capital that investors as a whole have used to purchase their tokens.
Since the MVRV index compares this initial investment to the value investors currently have (i.e. market cap), it essentially provides information on the profitability of addresses on the btc network.
Now, the pricing model that Glassnode has created does not directly use the MVRV ratio itself, but rather some standard deviations (SD) from its mean. Below is the chart of this model shared by the analytics firm in the report.
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In this model, price levels correspond to btc prices at which the MVRV ratio would reach a value equal to a certain SD above or below its mean. At the +0.5 SD level, for example, the MVRV ratio is 0.5 SD greater than its mean value.
From the chart, it is evident that the price of bitcoin has surpassed the upper price band of this model in its last run. The level in question is +1.0 SD, equivalent to $90,200 at the moment.
Historically, btc has tended to form highs when its price has exceeded this price band. The reason behind this is the fact that at such high levels of the MVRV index, investors make a significant amount of profits, so a sell-off on profit motive can become a real possibility.
The last time the cryptocurrency surpassed this barrier was in the first quarter of this year. As you can see from the chart, it didn't take long for the price to reach its high back then.
However, in bull markets of the past, bitcoin has typically remained within this overheated territory for notable periods of time before peaking. An example of this trend is also highlighted in the graph; In the first half of 2021, the bull run saw the currency remain in the zone for a few months thanks to high capital inflows.
As such, there is no need for btc to immediately hit a cyclical high now that it has overheated in this model.
btc Price
bitcoin had risen past the $98,000 level the previous day, but it appears that the coin has suffered a bit of a setback as it is now back to $97,500.
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