MVRV Ratio
MVRV (market-value-to-realized-value) ratio is a ratio of an asset's market capitalization to its realized capitalization.

Indicator Overview

MVRV (market-value-to-realized-value) is a ratio of an asset's Market Capitalization versus its Realized Capitalization. By comparing these two metrics, MVRV can be used to get a sense of when price is above or below "fair value", and to assess market profitability. Extreme deviations between market value and realized value can be used to identify market tops and bottoms as they reflect periods of extremes investor unrealized profit and loss, respectively.
At its foundation MVRV is a comparison of the following:
  • Market Cap: Current value of supply (market value of the asset)
  • Realized Cap: Cost basis of supply (value stored in the asset)
The MVRV Ratio can generally be considered withing the following framework:
  • High values and up-trends: The market value of the coin supply is increasing relative to the realized value (cost basis). Higher values indicate a larger degree of unrealized profit is in the system, and increases the probability that investors will distribute coins to lock in gains.
    • MVRV Values > 3.5 has generally served as a strong signal for late stage bull cycles, and heightened probability of heavy distribution.
  • Low values and down-trends: The market value of the coin supply is decreasing relative to the realized value (cost basis). Lower values indicate a smaller degree of unrealized profit is in the system which may signal both undervaluation, or poor demand dynamics.
    • MVRV Vales < 1.0: indicates that a large cross-section of the supply is near break even, or held at a loss. These low values have typically provided strong signal of market capitulation and late stage bear accumulations.

How is it measured‌

MVRV is calculated by dividing an asset's market cap by its realized cap.
MVRV=Market CapRealized Cap\textrm{MVRV}=\frac{\textrm{Market Cap}}{\textrm{Realized Cap}}

User Guide

MVRV Ratio and its use as an analytical tool is fundamentally a study of aggregate investor behavior as price moves to / from their cost basis. It can be considered as a mean reversion style model, where the Realized Cap (aggregate market cost basis) functions as the mean, and MVRV measures deviations from this mean.

Indicator Signals

MVRV Ratio signals leave very little room for ambiguity. These signal are as follows:
High MVRV Values
  • Price has diverged from cost basis by a very large margin, suggesting large unrealized profitability across the market.
  • Increases likelihood that investors will begin distributing coins, adding to the liquid supply that must be absorbed by demand.
  • Extreme values (historically > 3.5) are bearish signals, indicative of potential cycle tops.
Low MVRV Values
  • Price has fallen below the aggregate cost basis by a large margin, suggesting investors are holding low unrealized profits, and/or large unrealized losses.
  • Increases likelihood that investors will, or have capitulated, and suggests that the asset is historically undervalued.
  • MVRV trading < 1 has historically signalled bear market bottoms, and smart money accumulation are in play.

About

Created By

Murad Mahmudov and David Puell (October 2018)

Further Resources

Murad Mahmudov and David Puell - Bitcoin Market-Value-to-Realized-Value (MVRV) Ratio
Willy Woo - Bitcoin MVRV Ratio