Using Market Value to Realized Value to estimate market tops and bottoms

Market Value to Realized Value (MVRV) has historically been one of the most accurate on-chain indicators for estimating bitcoin market tops and bottoms. This article explains how to interpret the indicator and discusses some trading strategies based on it.

One of the advantages of the open blockchain is that it opens up for on-chain analysis, giving traders and analysts much more data to work with. Many on-chain indicators have historically been handy in estimating the supply and demand conditions for crypto assets. One of these indicators is the Market Value to Realized Value (MVRV). As explained in this article, the indicator is especially suited for finding entry and exit points for medium-term traders and long-term investors.

Calculating the MVRV

We find Market Value to Realized Value (MVRV) by dividing the market value by the realized value. Adding together all the UTXOs (units) valued at the price when they last were moved gives us the realized value. The realized value can be viewed as the cost basis of the network, so we can use MVRV as a proxy to estimate the unrealized profit that is latent in the network. The market value is another word for market cap.

How can MVRV estimate market tops and bottoms?

MVRV can be used to estimate when the price is above or below fair value. For example, during the bull market in the spring of 2021, MVRV topped out at 3.96, the highest level seen since December 2017, when it briefly reached 4.72.

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