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- A CryptoQuant analyst explained that the MVRV ratio at the 1.2 level has historically been a support line for the cryptocurrency.
- Comparing market value to realized value in the MVRV ratio can provide clues about whether investors are holding more or less value than they put in.
- Bitcoin
’s MVRV ratio has been above the 1 level for the past few months. The indicator crossed this line when the rally began in January and has stayed above it since, except for a retest in March.
Bitcoin’s MVRV metric is heading towards a critical support area; a response from this support could trigger an upward rally in the Bitcoin price.
Bitcoin’s MVRV Ratio Approaching a Critical Test
On-chain data suggests that Bitcoin’s Market Value to Realized Value (MVRV) ratio is approaching a critical retest for the asset. A CryptoQuant analyst explained that the 1.2 level of the MVRV ratio has historically been a support line for the cryptocurrency. The “MVRV ratio” measures the ratio between Bitcoin’s market value and its realized value.
In this context, “realized value” represents a capitalization model for BTC, assuming that the current spot price is not the actual value of each coin, but the price at which the coin was last bought or realized on the blockchain.
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Realized value primarily represents how much capital each holder has put into the asset, taking into account the cost basis or acquisition price of each coin for every investor in the market. Therefore, comparing market value to realized value in the MVRV ratio can provide clues about whether investors are holding more or less value than they put in.
When the ratio’s value is greater than 1, it generally indicates that the market is currently in some profit overall. Typically, as MVRV exceeds this threshold, corrections become more likely as investors seek to cash in their gains.
Conversely, a value below this indicator may suggest that BTC is currently undervalued, as the average holders in the market may be holding their coins at a loss. A chart showing the trend in the Bitcoin MVRV ratio over the past few years can be seen below:
As shown in the above chart, Bitcoin’s MVRV ratio has been above the 1 level for the past few months. The indicator crossed this line when the rally began in January and has stayed above it since, except for a retest in March, which implies that holders have been profiting.
Why is this level important?
The 1 level has historically been significant for the asset. However, the analyst notes another value that is worth considering: “1.2”. This line has supported the asset several times in the past, as highlighted by the analyst in the chart (yellow boxes).
Most recently, Bitcoin found support at this level in June, where the cryptocurrency could potentially bounce back with a sharp rally. The metric is trending downward, and its current value is 1.27, indicating another potential test.
A successful retest could be positive news for Bitcoin, but a failure could lead to a long-term decline in the asset’s price.
