BeInCrypto examines on-chain indicators for Bitcoin , more specifically the Market Value to Realized Value (MVRV).
MVRV to BTC
The MVRV is a measure of the ratio between market capitalization and realized capitalization. If the ratio is greater than one, it means that the market cap exceeds the realized capitalization. High ratios indicate a market that is overvalued.
The indicator currently gives a reading of 1.71. Historically, this entire 1.70-1. 80 area has been crucial for determining the direction of the trend. It initially acted as resistance in early 2020, prior to the March 2020 bottom. After a period of consolidation inside it, an upward movement began on Oct 2020, leading to the current all-time high price.
Afterwards, the area caused a bounce during the July 2021 bottom.
MVRV has returned to this area. To maintain the bullish trend, it is vital that it bounces.
When looking at the entire values of the indicator since 2011, we can see that it has generated bearish divergence (black lines) only twice throughout its history.
The first transpired over a three-month period between June – Sept 2017. While the BTC price moved from a high of $2,000 to $4,000, the indicator dropped from 3.6 to 3. The BTC price rose from $2,53 to $4,, but the indicator dropped from 3.6 to 3.
A price rise in Bitcoin causes an increase of the market capital, so the realized cap will increase at a faster rate than the market capital. This can be interpreted as a bullish sign because it suggests that there has been an increase in transactions.
The second divergence transpired over a seven-month period, more specifically from Feb to Oct 2020. The BTC price moved from a high of $64,854 to the current all-time high price of $69,000. The indicator reading dropped from 3. 95 to 2.84. Therefore, the current bearish divergence was even more pronounced than the 2017 one.
After the 2017 divergence, BTC went on a parabolic run and increased from $4,000 to $20,000 in a period of slightly less than six months. We will see if the current divergence produces a similar result.
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