Bitcoin Officially In Overheated MVRV Zone, Rally End Near?
On-chain data shows that Bitcoin recently exceeded the market value to realized value (MVRV) ratio, a level that has historically signaled overheating conditions.
Bitcoin has exceeded the highest MVRV deviation pricing range
In its latest weekly report, the on-chain analytics firm glass node Discussed the current situation of Bitcoin from a pricing model-based perspective MVRV ratio.
The MVRV ratio is a popular BTC indicator that tracks the ratio between an asset’s market capitalization and its market capitalization achieve upper limit. Simply put, the latter is an on-chain capitalization model that tells us the amount of capital an investor as a whole has used to purchase their tokens.
Since the MVRV ratio compares the initial investment to the value of an investor’s current holdings (i.e. market capitalization), it essentially provides information about the profitability of an address on the BTC network.
Now, the pricing model created by Glassnode does not directly use the MVRV ratio itself, but instead uses some standard deviation (SD) of its mean. Below is a diagram of the model shared by the analyst firm in its report.
In this model, the pricing level corresponds to the BTC price at which the MVRV ratio reaches a value equal to some SD above or below its mean. For example, at the +0.5 SD level, the MVRV ratio is 0.5 SD larger than its mean value.
It is evident from the chart that Bitcoin price has broken out of the top part of the model’s pricing band in its latest run. The level in question is +1.0 SD, currently equivalent to $90,200.
Historically, when Bitcoin’s price moves beyond this pricing range, it tends to form a top. The reason behind this is that at such a high MVRV ratio, investors are holding on to huge profits and hence massive selling out of profit-taking motives could become a reality.
The last time the cryptocurrency broke through this barrier was in the first quarter of this year. As you can see from the chart, it didn’t take long for the price to reach its top.
However, in past full-blown bull markets, Bitcoin has typically remained in this overheated zone for quite some time before peaking. An example of this trend is also highlighted in the chart; first half 2021 bull market The coin stayed in the zone for several months due to heavy capital inflows.
Therefore, now that Bitcoin is overheated on this model, there is no need for it to reach a cyclical top immediately.
bitcoin price
Bitcoin had breached the $98,000 level earlier in the past day, but the coin appears to have suffered a minor setback and is now back at $97,500.
