MVRV Ratio

# Definition

MVRV (Market Value to Realized Value) ratio is defined as an asset's market capitalization divided by realized capitalization.
$\text{MVRV Ratio} = \frac{\text{Market Cap}}{\text{Realized Cap}}$

# Interpretation

By comparing two valuation methods, 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. When this value is too high, BTC price may be overvalued, possibly implying selling pressure. On the other hand, when this value is too low, BTC price may be undervalued, possibly implying buying pressure.

# Use Cases

## Predicting Market Tops and Bottoms

We set the upper threshold as 3.7 and the lower threshold as 1 for spotting market tops and bottoms. If the sharp upward trend continues to grow above 3.7, we need to wait for the timing to sell our position off. Conversely, if the gradual downward trend has been shown and the trend goes sideways, it is the time for taking a long position.