How the MVRVT Indicator correlates with the historical bear market bottoms.
The On-chain analysis indicator shows the Bitcoin market is cooling.
TL: DR
- MVRV is a ratio that measures the relationship between a digital asset’s market capitalization and the transaction volume of its underlying blockchain.
- MVRV has grown in popularity among cryptocurrency investors and analysts because it can provide valuable insights into the current market.
- On-chain analyst Dilution-proof compared three Bitcoin post-halving cycles in a tweet where he compared the current bear market to its historical counterparts using the MVRVT indicator charts.
- In a follow-up analysis by Jakub Dziad Kowie, he observed that based on comparisons with historical market cooling data, the bottom in Bitcoin price has already been reached, and a bullish trend reversal could occur soon.
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Introduction
The current downturn will go down as one of the longest in the history of crypto markets. Experts have begun to look at the possible indications of the end of the dark crypto winter, which has seen prices falling like a pack of cards. While the general market has also started showing some signs of cooling, the focus of analysts is primarily channeled toward on-chain indicators for Bitcoin (BTC).
The Market Value to Realized Value Ratio Temperature (MVRVT) is examined explicitly to compare it to previous market cycles. One recently published analysis examined five indicators that signal the end of a cryptocurrency bear market and an on-chain analysis. The analysts also looked at the 65% period since the previous Bitcoin halving employing the MVRVT indicator to assess the current market cycle, particularly in light of the upcoming Bitcoin halving event.
What is Market Value to Realized Value Ratio Temperature (MVRVT)?
MVRV is a ratio that measures the relationship between a digital asset’s market capitalization and the transaction volume of its underlying blockchain. The MVRV Ratio is an on-chain indicator used to study aggregate investor behavior as price moves to and from their cost basis. It is a mean reversion model in which the Realized Cap (aggregate market cost basis) serves as the mean, while MVRV measures deviations from this mean.
A high MVRV ratio may indicate an asset is overvalued and ready for a sell-off. A low MVRV ratio, on the other hand, may indicate that an asset is undervalued and is due for a price increase. MVRV has grown in popularity among cryptocurrency investors and analysts because it can provide valuable insights into the current market.
This novel concept of MVRV marked a watershed moment in the emerging field of on-chain analysis. On October 9, 2018, Awe and Wonder improved the MVRV ratio by developing a metric known as the MVRV z-Score. The MVRV z-scores represent the number of standard deviations that each bitcoin market valuation is raised or lowered compared to its realized value. This metric’s visualization makes it much easier to compare relative bitcoin market valuations to previous bitcoin market cycles using Bitcoin halving as a benchmark.
Colors that mimic the temperature of the BTC market are an addition to the MVRVT indicator’s native metric. A standard deviation from zero determines them. It corresponds to the MVRV indicator’s level 1 — the “fair value” of Bitcoin.
The figure above depicts the evolution of the MVRV z-score. MVRV z-scores of 0 (blue), 2 (green), 4 (yellow), 6 (orange), 8 (red), and 10 are represented by colored horizontal lines (brown).
The MVRVT indicator moved closer to red as the deviation increased. It occurred during previous bull market peaks in 2011, 2014, 2017, and 2021. Interestingly, the indicator did not reach red colors during the previous bull market, and the bull market ended at orange.
When MVRVT fell below 0, the colors became colder and colder toward blue. This occurred at the end of each bear market.
How is MVRV measured?
The formula for MVRV is:
MVRV = Market capitalization / Realized capitalization
Realized capitalization measures the value of all cryptocurrency purchased and sold over a specific period. It is determined by adding the value of all outstanding buy and sell orders to the market capitalization. Realized capitalization can be used to assess a cryptocurrency market’s health and forecast future price movements.
Market capitalization: A cryptocurrency’s market capitalization is the total value of all its coins in circulation. (number of tokens X token value)
An MVRV value of 100% (or 2.0) indicates that if all holders sell their coins/tokens at the current price, they will make a profit of 100% (x2).
Advantages of Investing in Cryptocurrencies with MVRV
- MVRV, or market value to realized value, is a cryptocurrency investor metric used to determine whether a coin is overvalued or undervalued.
- MVRV can be used to identify market cycles and make appropriate investment decisions. If the MVRV is high, it may be time to sell, and if it is low, it may be time to buy.
- MVRV can also be used to assess risk. A high MVRV indicates more downside risk than upside potential, whereas a low MVRV indicates the inverse.
- MVRV is a valuable resource for cryptocurrency investors. You can make better investment decisions and maximize your profits by keeping an eye on the MVRV of your favorite coins.
MVRVT, in light of the Bitcoin halving
On December 16, on-chain analyst Dilution-proof compared three Bitcoin post-halving cycles in a tweet. He compared the current bear market to its historical counterparts using the MVRVT indicator charts. It was discovered that there were periods of exceptionally high MVRVT deviations at the start of each cycle for the first 12–18 months after each halving. However, all three Bitcoin cycles resulted in the index falling below zero in the 25–35 months following the halving. Bitcoin is in its 31st post-halving month, and MVRVT remains below 0.
The MVRVT Indicator correlates with historical data on the end of a bear market.
In a follow-up analysis by Jakub Dziad Kowie to dilution-proof’s post, he observed that based on comparisons with historical market cooling data, analysis suggests that the bottom in Bitcoin price has already been reached. Furthermore, depending on which cycle the current price action resembles, a bullish trend reversal and move above the 0 levels could occur in as little as two months (cycle 2 — green) or as long as four months (cycle 3 — red) (cycle 1 — blue).
He argued further that if Bitcoin were extremely overheated today, as it has been at the peak of previous bull markets, the BTC price would be $165,200. This projection is the standard deviation of the MVRVT ratio at level 10.
He concluded that while Bitcoin would be able to reach the price, it will only occur about a dozen months after the next halving, which is currently billed for April 10, 2024.
Conclusion
MVRVT is a breakthrough in the evolving field of on-chain analysis. The recent MVRVT Indicator, which correlates with historical data on the end of the bear market, has caught the attention of analysts and observers. The relation between the indicator and Bitcoin halving further directs attention to this significant event in the epoch of the crypto industry.
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