MVRV (Market Value to Realized Value) ratio is defined as an asset's market capitalization divided by realized capitalization
By comparing two valuation methods, the MVRV ratio can tell us to get a sense of whether the price is fair or not, which means it is useful to get market tops and bottoms.
It is important to note that historically, it has been an outstanding indicator to spot market top/bottom or local top/bottom that occurred through three halvings.
MVRV accounts both realized cap and market cap into account making certain values critical in making an investment decision.
- Values over ‘3.7’: Possible Market TopIf the values go above 3.7, it could be reasonable to sell the position off
- Values under ‘1’: Possible Market BottomIf the values go under 1, it is time for taking a gradual long position.
If Market cap growth outpaces that of the realized cap, MVRV values rise indicating possible motive for selling.
- Increasing trend: Increasing selling pressureAs MVRV increases, it indicates that the market cap is outpacing realized cap meaning there is increasing motive for selling in the market.
- Decreasing trend: Decreasing selling pressureAs MVRV decreases, it indicates that realized cap is outpacing the market cap meaning there is decreasing motive for selling in the market.