Litecoin’s MVRV Has Surged, Why This Is Bearish

On-chain data shows the Litecoin MVRV has been at relatively high levels recently, something that could be bearish for the cryptocurrency.

According to data from the on-chain analytics firm Santiment, LTC traders are well above water at the moment. The “MVRV ratio” is an indicator that measures the ratio between the two main capitalization models for Litecoin: the market cap and the realized cap.

The market cap here is the usual cap that calculates the total value of the asset by simply taking the value of each coin in the circulating supply the same as the current spot price.

The realized cap, however, is a more special model as it assumes that the actual value of any coin in circulation is the price at which it was last transacted on the blockchain.

Since this model aims to estimate a sort of “true value” for Litecoin, its comparison with the market cap (that is, the spot price) in the MVRV can tell us whether the asset’s price is fair or not right now.

When the MVRV has a value greater than 1, it means the market cap is above the realized cap currently. During such times, the average investor is in a state of profit, so the incentive to sell for them increases. As such, the cryptocurrency could be considered overpriced in these conditions.

On the other hand,  the indicator having a value lower than this threshold implies the average holder is in a loss, and hence, the asset may be undervalued currently.

Now, here is a chart that shows the trend in the 30-day and 365-day moving averages (MAs) of the Litecoin MVRV ratio over the last few months:

As displayed in the above graph, both the 30-day and 365-day MAs of Litecoin MVRV have risen above the baseline with the recent surge in the price beyond the $90 level. This may mean that the cryptocurrency could have become slightly overpriced.

Prior to this surge, when LTC had been visiting some lows, the 30-day version of the indicator had temporarily entered into the undervalued region. Coinciding with these values of the metric, the price formed its bottom and eventually built up towards the current surge.

Back in April, the MVRV MAs showed a similar behavior as right now, as they touched relatively high values when the asset had rallied above the $100 mark. The rally stopped before long in those overvalued conditions, and the asset took a plunge.

If a similar pattern as back then also follows with the current overpriced values of the indicator, then Litecoin may go on to observe a correction in the near future.

In the long term, however, the outlook of the asset could still remain bullish, as the much-awaited halving event, where the cryptocurrency’s block rewards will be permanently cut in half, will take place in August, which is just around the corner now.

At the time of writing, Litecoin is trading around $91, up 1% in the last week.