MVRV (Market Value to Realized Value)
Chart Overview
MVRV stands for Market Value to Realized Value and is a way to identify whether Bitcoin price may be under or overvalued at any moment in time.
When looking at the difference between Bitcoin market value and realized value, the extremes in the results have occurred at the major tops or bottoms of Bitcoin’s market cycles.
The blue line on the chart is the MVRV score. The white line is Bitcoin price.
How is it calculated?
There are two data inputs for this indicator. The first is market value:
Market Value = Price x number of coins in circulation
This is very similar to calculating the market cap in traditional markets where we multiply the price of a share by the number of shares.
Realized Value = Cost basis of all available bitcoins in the market.
What does cost basis mean? This refers to the price that was paid for all bitcoins. We can calculate this by analyzing data on the blockchain. We look at when bitcoins last moved from one wallet to another and see what the price was at that time. They are then aggregated up to get to an overall value which is Realized Value.
The actual calculation for MVRV is the ratio between Market Value and Realized Value. The formula for this is:
MVRV = Market Value / Realized Value
Why Is It Useful for Bitcoin Price Forecasts?
MVRV is useful because it is able to show when the current market value is overheated relative to a more neutral level which is realized value. We can say that realized value is more neutral because it is gradual and smoothed out over time, it is not as volatile as market value which can be dictated in the short term by extreme market participant emotions such as fear or greed.
Historically we have seen when MVRV ratio is high, the market is euphoric and the price of Bitcoin may be topping out. When MVRV is low it can signal that price of Bitcoin is close to bottoming out.
This can be seen on the live chart above by looking at the price line and the MVRV line.
Learn More About This Indicator
The concept for this indicator was first devised by David Puell and Murad Mahmudov. This is their original article titled Bitcoin MVRV Ratio.
You can view other free live charts on the Decentrader website such as the onchain tool SOPR (Spent Output Profit Ratio).