Bitcoin Top In Yet? What The Legendary MVRV Ratio Says

Here’s what the latest trend in the Bitcoin Market Value to Realized Value (MVRV) ratio suggests about where the market is currently in terms of a top.

According to data from the market intelligence platform IntoTheBlock, the BTC MVRV ratio surged high earlier this year as the cryptocurrency rally took place.

The “MVRV ratio” is a popular indicator that tracks the ratio between the Bitcoin market cap and the realized cap. The former is simply the total valuation of the asset’s supply at the current spot price, while the latter is an on-chain capitalization model.

The realized cap measures the total sum of the value of the cryptocurrency’s supply, assuming that each coin in circulation has its true value at the price at which it was last transferred on the blockchain rather than the current spot value.

One way to interpret the realized cap is that since it takes into account the buying price of every token in circulation (assuming that the last transaction of every token was indeed the point at which it last changed hands), it essentially sums up the total capital the investors have invested in the asset.

As such, the MVRV ratio tells us how the total value that Bitcoin investors are carrying right now (that is, the market cap) compares against the value they put in (the realized cap).

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

As is visible in the graph, the Bitcoin MVRV ratio has had a value greater than 1 for a while now. When the indicator has such values, the market cap is greater than the realized cap, and hence, the investors carry net profits.

With the latest rally in the asset, this indicator has surged to relatively high levels, a natural consequence of the holders’ profits ballooning up with the price surge.

After the recent drawdown in the price, though, the MVRV ratio has also turned itself around, as it’s now heading down. At present, the ratio has a value of around 2.34.

“Traditionally, an MVRV ratio above 3 has been a reliable marker for predicting price peaks,” notes IntoTheBlock. So far, in the current rally, the metric hasn’t crossed this mark. It did come close recently, but the latest decline has meant it has gained a bit more distance to the level.

Why have tops historically occurred at high values of the Bitcoin MVRV ratio? The answer is that investors in profits are more likely to participate in selling, and this temptation to take profits only increases as their gains grow larger.

Because of this, selloffs are most probable when the market is holding extreme levels of profits, which is exactly what high MVRV ratio values reflect.

At the time of writing, Bitcoin is trading at around $67,200, up 3% over the past 24 hours.