As Bitcoin continues to set new all-time highs, most investors are now in profit. The once skeptical sentiment toward the bull market is shifting to optimism, and several on-chain metrics are painting a very positive picture for further upside.
Among these metrics, I’d like to discuss one of the most commonly used by investors: the MVRV ratio.
The MVRV ratio is calculated by dividing Bitcoin’s market cap by its realized cap. Historically, values below 1 indicate a market bottom, while values above 3.7 signal a potential market top.
A closer look at the MVRV ratio chart shows that the lows are getting higher, while the highs are becoming lower. Therefore, it may not be realistic to expect the MVRV ratio to necessarily exceed 3.7 during this cycle. Instead, it might be more prudent to interpret a substantial rise in the ratio as a signal that Bitcoin’s price is approaching its peak.
One key caution is that if the MVRV ratio rises above 3 (e.g., reaching 3.7), selling all your Bitcoin immediately could lead to significant FOMO later.
In past cycles, detailed analysis of historical charts shows that in 2017, the MVRV ratio first reached 3.7, but Bitcoin’s price didn’t peak until six months later. Similarly, in 2021, the peak followed about three months after the ratio hit 3.7. While the MVRV ratio signaled overvaluation, Bitcoin’s price continued to rise with sharp fluctuations, and the ratio lingered near 3 (yellow boxes) for extended periods.
Therefore, relying solely on the MVRV ratio to build an investment strategy could be a risky plan. However, a strategy of gradual selling based on the ratio’s rise can be an excellent approach.
Asset prices often enter phases of extreme overvaluation that cannot be fully explained by numerical data alone. During a bull market, it’s essential to use not only on-chain metrics but also factors like investor sentiment, macroeconomic trends, and government policies to develop a well-rounded
Written by Avocado_onchain
