MVRV (Market Value to Realized Value) is the ratio of the market capitalization (Market Cap) of a cryptocurrency to the realized value (Realized Value) of those assets.
Market Value:
It is obtained by multiplying the current market price of the cryptocurrency by its total supply. That is, the total value of the market at the current price.
Realized Value:
The total supply of each cryptocurrency multiplied by the price at which it was last transferred. This is the total value of the cryptocurrency, valued at the price at which it was transferred.
MVRV Calculation:
MVRV=Market Value / Realized Value
Meaning of MVRV
1.Overbought and Oversold Conditions:
High MVRV:
Refers to a situation where the market capitalization is high relative to the realized value. This indicates that the market price of the cryptocurrency is historically
high, and investors are generally in profit. In this case, the market may be overbought.
Low MVRV:
Refers to situations where the market value is low relative to the realized value. This indicates that the market price is historically low, and investors are usually at a loss. In this case, the market may be oversold.
2.Market Psychology:
The MVRV ratio may reflect the general sentiment and behavior of market participants with respect to profit and loss situations. High MVRV ratios may indicate that investors have a high expectation of making a profit, which may lead to higher prices. Low MVRV ratios may indicate that investors are more cautious and prices may be lower.
3.Trend and Price Analysis:
Changes in the MVRV ratio can be used to understand shifts in cryptocurrency valuation and potential market trends. In particular, extremely high or low MVRV values can signal the potential for the market to turn.
MVRV Z-Score:
Measures how far MVRV has moved away from the historical average. This assesses how “extreme” or “low” MVRV is in a richer context and shows how far it is from historical norms.
MVRV Z-Score Calculation:
MVRV Z-Score= (MVRV – Average MVRV)/Standard Deviation
Average MVRV: Historical average of MVRV.
Standard Deviation: Historical standard deviation of MVRV
Examples
Example 1: MVRV Analysis
- If a cryptocurrency has an MVRV ratio of 2.5, it means that the market is highly overvalued, and traders are usually in profit. This could mean that the price is overvalued and there could be a correction.
Example 2: MVRV Z-Score Analysis
In a situation where the MVRV Z-Score is 3.0, this indicates that the MVRV has moved away from the historical average by three standard deviations. This could indicate that the market is at a historically very high level and the risk of a potential correction is quite high.
Source: Bitcoin Magazine Pro
When we examine the chart, in scenarios where the Realized Value exceeds the Market Value, the MVRV data shows overselling (Yellow circle). This may signal the potential for a market turnaround. On the other hand, when we examine the MVRV Z-Score data, we can see the time intervals when it is valued extremely above the historical average on the Red circle.
When it comes to current data, we see that the MVRV ratio is 2.04. This indicates that the market is highly valued, and traders are generally in profit. This data may indicate that the market may be in overbought conditions. Investors may engage in profit realization, which could lead to price corrections.
The MVRV Z-Score of 1.84 indicates that the MVRV is slightly higher than the historical average but not to the level of overvaluation. This data indicates that the market is valued but not far beyond historical norms.
Overall, in a situation where the MVRV is 2.04 and the MVRV Z-Score is 1.84, we can say that the cryptocurrency is generally valued, and investors are in profit. However, the fact that the Z-Score is not extremely high may indicate that the likelihood of an immediate major correction may be low. While we know that the market is overvalued, the information provided by the Z-Score may indicate that this height is not on the border of overvaluation and therefore price movements should be carefully monitored.
