On-chain data shows the Bitcoin MVRV ratio is approaching a retest of the 1.5 level, breaking above which may be bullish for the assets price.

As explained by an analyst in a CryptoQuant post, the 1.5 level of the metric has held significant importance in the past. The MVRV ratio is an indicator that measures the ratio between the market cap of Bitcoin and its realized cap.

The realized cap here refers to a capitalization model for BTC that assumes that each coin in the circulating supply has its real value the same as the price at which it was last moved or transferred on the blockchain.

Since the MVRV ratio compares the market cap (that is, the normal price of BTC) with this fair-value model, the ratios value can provide hints about whether BTC is currently aptly valued or not.

When the value of the indicator is higher than one, it means the assets market cap is greater than its realized cap right now. Such a trend can imply the cryptocurrency may be overvalued currently.

On the other hand, the metric having values below this threshold suggest the fair value of BTC is above its current price, and hence, the coin may be undervalued at the moment.

Now, here is a chart that shows the trend in the Bitcoin MVRV ratio over the last few years:

As you can see in the above graph, the quant has highlighted the relevant portions of the trend for the Bitcoin MVRV ratio. The region below 1, as mentioned earlier, is the undervalued zone where bottoms have historically formed for the coin. Cyclical tops, however, havent generally formed in the zone above 1, but rather at much higher values like 3 or more.

Following the COVID crash back in 2020, the MVRV bounced out of the underpriced region and showed some constant upwards momentum, until it reached higher than 3.75, and the top of the bull run in the first half of 2021 was formed.

After that, in the May-July 2021 mini-bear period, the indicator took a plunge and hit a value of around 1.5. The level, however, provided support to the metric and helped it make a sharp recovery, which ultimately culminated in the November 2021 Bitcoin all-time high price.

When the transition towards the bear market started to take place, the MVRV ratio plummeted to the 1.5 level again, but the line once again helped the indicator hold on.

This time, however, after sideways movement around the level, the indicator eventually plunged below it as the market crash due to the LUNA collapse occurred.

The decline also continued later with the Three Arrows Capital (3AC) collapse, and the metric found itself inside the undervalued region again. The ratio spent a while in this zone until the latest rally came and finally pulled it out of there. This escape above the region may suggest that at least the worst of the bear market may be over for now.

With the sharp rise in BTC recently, the MVRV ratio has also naturally continued to go up and is now approaching the 1.5 level which it had multiple encounters within the last few years.

Its possible that the coin could find resistance here and be rejected back downwards. The quant believes, however, that if a breach does happen here, then Bitcoin might be able to sustain its bullish momentum.

At the time of writing, Bitcoin is trading around $28,600, up 4% in the last week.

Featured image from Dmitry Demidko on Unsplash.com, charts from TradingView.com, CryptoQuant.com

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Bitcoin MVRV Ratio Approaches 1.5 Level, Will Break Happen? - NewsBTC