What is MVRV “Market value to realized value” in crypto ?
MVRV is a ratio that measures the relationship between the market capitalization of a digital asset and its underlying blockchain’s transaction volume. The ratio was created by cryptocurrency analyst Willy Woo and first published on Twitter in July 2018.
The idea behind MVRV is that it can be used to identify whether a digital asset is currently over- or undervalued.
To put it simply, if the MVRV ratio is high, it may indicate that an asset is overvalued and ripe for a sell-off. Conversely, a low MVRV ratio could suggest that an asset is undervalued and could be due for a price increase.
MVRV has become a popular metric among cryptocurrency investors and analysts as it can provide valuable insights into the current state of the market.
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However, it should be noted that MVRV is not perfect and should not be used as the sole basis for investment decisions.
Let get right into it to fully understand how it works !
What is Market Value to Realized Value
MVRV is a technical indicator that measures the relationship between the market value of a cryptocurrency and its realized value. MVRV is calculated by dividing the market value of a cryptocurrency by its realized value.
The formula is quite simple :
MVRV = Market capitalization / Realized capitalization
- Realized capitalization : it is a measure of the value of all the cryptocurrency that has been bought and sold over a certain period of time. It is calculated by taking the market capitalization and adding to it the value of all outstanding buy and sell orders. Realized capitalization can be used to measure the health of a cryptocurrency market, as well as to predict future price movements.
- Market cap : The market capitalization of a crypto is the total value of all its coins in circulation. (number of token X value of token)
MVRV can be used to measure whether a cryptocurrency is overvalued or undervalued. If the MVRV is greater than 1, it indicates that the market value of the cryptocurrency is greater than its realized value, and vice versa.
MVRV can also be used to predict future price movements. If the MVRV is increasing, it indicates that the market value of the cryptocurrency is outpacing its realized value, and vice versa.
Why is MVRV important?
MVRV is a metric that measures the ratio of market value to realized value. In other words, it tells you how much your crypto assets are worth in relation to how much you paid for them.
Well, if the MVRV is high, it means that the market is overvaluing your assets. This is often a sign that a correction is coming. On the other hand, if the MVRV is low, it means that your assets are undervalued and there could be an opportunity to buy.
Of course, like all indicators, MVRV should not be used in isolation. But it can be a helpful tool for those who are trying to make informed decisions about when to buy or sell their crypto holdings.
How can MVRV be used to make money in the cryptocurrency market?
MVRV is a tool that can be used to measure the market value of a cryptocurrency. It can be used to make money in the cryptocurrency market by buying and selling at the right time.
MVRV can also be used to take profits when the market value of a cryptocurrency increases.
Benefits of using MVRV to invest in cryptocurrencies
MVRV, or market value to realized value, is a metric used by cryptocurrency investors to measure whether a coin is overvalued or undervalued.
MVRV can be used to spot market cycles and make investment decisions accordingly. For example, if the MVRV is high, it may be time to sell, and if the MVRV is low, it may be time to buy.
MVRV can also help you measure risk. A high MVRV means that there is more downside risk than upside potential, while a low MVRV means the opposite.
Overall, MVRV is a helpful tool for cryptocurrency investors. By keeping an eye on the MVRV of your favorite coins, you can make better investment decisions and maximize your profits.
Risks and limitations using MVRV
MVRV comes with several risks and limitations that investors should be aware of.
For one, MVRV only measures the amount of fiat currency (e.g. USD, EUR) that has been invested into an asset, rather than the total cryptocurrency market value. As such, it can be skewed by large investors with more capital.
Additionally, MVRV doesn’t take into account how long an investor has held onto their investment. A digital asset could have a high MVRV but low ROI if most of the capital was invested a long time ago when the asset was worth less.
Finally, MVRV can fluctuate quite wildly in the short-term, making it difficult to use as a reliable metric for investment decisions.
Conclusion on MVRV in crypto trading
MVRV is a powerful tool that can be used to identify price movements in the cryptocurrency market. However, like all indicators, it is not perfect and should be used in conjunction with other technical indicators and market analysis tools.
Combined with the right tools, it can be a very powerful ally ! Have you heard of the RSI index ? Here’s an article to know more about it :