Bitcoin MVRV at a Critical Level: Will a Breakout Happen?

On-chain data shows that Bitcoin’s “Market Value to Realized Value” (MVRV) is currently at a critical level. Will there be a bullish breakout?

The Bitcoin MVRV ratio is retesting the 1.5 level right now

As one analyst pointed out in a CryptoQuant post, the BTC MVRV ratio has been at a critical level recently. “MVRV Ratio” is an indicator that measures the ratio of Bitcoin’s market capitalization to its realized capitalization.

The “realized cap” here refers to a capitalization model for the asset that assumes that the actual value of each coin in the circulating supply is not the current spot price, but rather the price at which the coin was last traded in the block chain.

This model aims to find some kind of “true value” for the coin, so comparing it to the market cap in the MVRV ratio can tell us how the current spot price (i.e. market cap) compares. with this fair value.

When the indicator has a value greater than one, it means that the market capitalization is greater than the current realized capitalization. In this situation, investors hold more value than they invest, so they are more likely to sell and reap these gains. Therefore, this type of trend can suggest that the asset is being overvalued and that a correction may be on the horizon.

On the other hand, the low values imply that the cryptocurrency’s market cap may be undervalued right now, as the average investor is holding their coins at a loss.

Now, here’s a chart showing the trend in Bitcoin’s MVRV ratio over the past few years:

It seems that the value of the metric has recently gone up | Source: CryptoQuant

As shown in the chart above, Bitcoin’s MVRV ratio had been below a mark for most of the second half of 2022. This is not an unusual trend, as bearish periods typically see investors take losses. deep, which naturally results in the value of the indicator sinking.

However, what is interesting is the interaction of the metric with the line where its value becomes 1. While downtrends last, the level generally provides resistance to the asset. Examples of what happened during last year’s bear market can be seen on the chart.

However, with this year’s rally, Bitcoin was able to break above this level, implying that a transition to a bullish regime had occurred. The indicator briefly fell to this level in March, but was supported by the line, confirming that an uptrend was indeed active.

The MVRV ratio has now recently risen towards the 1.5 level, at which the market cap is 50% more than the realized cap. At these values, the asset naturally begins to be overvalued and the risk of corrections increases.

On the chart, it is visible that the coin found resistance at this 1.5 level when it was retested in April. Since rallying back towards it recently, the cryptocurrency has been trading sideways around this level thus far.

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