Bitcoin MVRV Suggests Rally May Have More Room To Grow
The current trend in Bitcoin’s MVRV index suggests that the cryptocurrency’s continued bullishness may have room to grow further.
Bitcoin’s MVRV ratio has yet to reach its 4-year MA
As pointed out by an analyst in a CryptoQuant post, the asset price recovery phase is not over yet. The “Market Value to Realized Value” (MVRV) ratio is an indicator that measures the relationship between Bitcoin’s market value and realized value.
The “realized cap” here refers to a capitalization model for BTC that measures the total asset cap 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. As the MVRV index compares the market value (i.e. the normal price) with the realized value, the indicator can provide hints as to whether the asset is currently overvalued or undervalued.
When the value of the MVRV index is greater than one, it means that the market value is greater than the realized value at the time. Such a trend suggests that the coin may be getting overpriced. On the other hand, metric values below this threshold imply that the cryptocurrency may be currently undervalued.
Now, here’s a chart that shows the trend on this Bitcoin indicator, as well as its 4-year moving average (MA), over the past few years:
The value of the metric seems to have been going up in recent days | Source: CryptoQuant
As shown in the chart above, Bitcoin’s MVRV index stayed below the 1 mark for much of the current cycle’s bear market, until this year’s January rally began.
The surge took the market cap above the realized threshold and so far has not dropped below it again as the cryptocurrency price has continued to observe bullish momentum.
There was a close last month where a setback in price almost sent the MVRV index into the undervalued zone again, but level 1 provided support for the indicator.
One line that quant in the post believes has historical relevance for Bitcoin is the 4-year MA of the MVRV index. From the chart, it is evident that the price broke through 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 a hot spot between bearish, rebound and bullish cycles, with a breakout of this range during the recovery phase often leading to a short-term overheating followed by a period correction before entering a bullish phase.”
Although the MVRV index has seen a sharp uptrend recently, the indicator is still not close to the 4-year MA line. If previous cycles are anything to go by, the recovery phase that BTC is now seeing could also lead to a crossover above this level. This suggests that the current rally may have more potential to grow before the top is reached.
BTC price
At the time of writing, Bitcoin is trading around $28,300, up 1% over the past week.
Looks like BTC has gone stale recently | Source: BTCUSD on TradingView
Thought Catalog featured image on Unsplash.com, charts from TradingView.com, CryptoQuant.com