Bitcoin MVRV At Critical Support Line, Will Retest Be Successful?

On-chain data shows the Bitcoin Market Value to Realized Value (MVRV) ratio is nearing a retest that could be crucial for the asset.

As an analyst in a CryptoQuant Quicktake post explained, the 1.2 level of the MVRV ratio has historically been a support line for the cryptocurrency. The “MVRV ratio” is an indicator that measures the ratio between the Bitcoin market cap and the realized cap.

The “realized cap” here refers to a capitalization model for BTC that assumes the real value of each coin in circulation isn’t the current spot price but rather the price at which the coin was last bought/transacted on the blockchain.

As the realized cap considers the cost basis or acquisition price of each investor in the market, the model essentially represents the total capital that the holders have put into the asset.

Thus, comparing the market cap against the realized cap in the MVRV ratio can provide hints about whether the investors are holding more or less value than they put in.

When the ratio’s value is greater than 1, it means that the market as a whole is sitting on some profits right now. Generally, the higher the MVRV goes above this mark, the more probable corrections become for the asset as investors look to harvest their gains.

On the contrary, the indicator below this mark can signal that BTC may be underpriced right now, as the average holder in the sector carries coins at a loss.

Now, here is a chart that shows the trend in the Bitcoin MVRV ratio over the last few years:

As is visible in the above graph, the Bitcoin MVRV ratio has been above the 1 mark during the past few months. The metric broke above this line in January when the rally started. Besides a retest in March, the indicator has remained above this level since then, implying that the holders have enjoyed profits.

The 1 level has been important historically for the asset. Still, the quant notes that another value is notable: 1.2. This line has supported the asset a few times in the past, as the analyst has highlighted in the chart (the yellow boxes).

Most recently, Bitcoin found support at this level in June, where the cryptocurrency could propel itself back up with a sharp rally. The metric is heading down and again approaching a retest of this line, as its current value is 1.27.

Naturally, a successful retest could be positive news for Bitcoin, but a failure might lead to an extended drawdown for the asset’s price.

As the chart below shows, Bitcoin has continued to consolidate recently, with the asset’s price still trading around the $25,700 level.