Bitcoin MVRV Approaches Decisive Retest, Here’s What Could Happen Next
On-chain data shows that Bitcoin MVRV is approaching a decisive retest at the moment. Here’s what a successful exit could mean for the crypto price.
Bitcoin MVRV ratio is approaching its 100-day EMA line
As pointed out by an analyst in a CryptoQuant post, BTC has continued to see long-term growth when the metric has responded to this line before. The “MVRV ratio” is an indicator that measures the ratio of the market value of Bitcoin to its realized value.
The “realized cap” here refers to a capitalization model for BTC that assumes that each coin in the circulating supply actually has its real value equal to the price it was last moved to (rather than the current BTC price, as the normal market cap says) .
The realized cap is often known as a fair value model for the asset, so MVRV tells us whether the BTC price (market cap) is currently fair or not by comparing the two values of the coin.
When the ratio has a value greater than 1, it means that the market value is greater than the realized value, thus the cryptocurrency may be overvalued right now. On the other hand, values below this threshold mean that the coin may be currently undervalued.
Now, here is a chart showing the trend of the Bitcoin MVRV ratio, as well as its 100-day exponential moving average (EMA), over the past few years:
Looks like the value of the metric has been declining in recent weeks | Source: CryptoQuant
As you can see in the graph above, the Bitcoin MVRV ratio was below 1 during the bear market lows of the past year, showing that the cryptocurrency was underpriced.
However, with the latest rally, the metric has escaped from this zone and now has a value greater than 1. In the chart, the analyst has highlighted the historical bottom zone in green and the top zone in red. At the moment, while the MVRV may be showing slightly overvalued conditions, the price is still not high enough to hit the zone where tops have formed in the past.
A strange pattern appears when looking at the indicator’s interaction with its 100-day EMA curve. It seems that every time the ratio has tested this line from above and has successfully bounced back from it, the price of Bitcoin has continued to enjoy a long-term bullish trend.
Currently, as the rally has stalled and the price has seen some decline, the MVRV ratio is also declining and is now approaching its 100-day EMA line.
Right now it is unclear if the metric will continue this path and a retest will take place, but if one does and it is successful, Bitcoin could feel a bullish push from it if the previous pattern is anything to go by.
BTC price
At the time of writing, Bitcoin is trading around $22,000, down 7% in the last week.
BTC continues to consolidate | Source: BTCUSD on TradingView
Featured Image by Kanchanara at Unsplash.com, Charts by TradingView.com, CryptoQuant.com
