MRV (Market-Realized Value) is an important metric used in cryptocurrency trading and analysis. It provides insights into the overall valuation and market sentiment of a cryptocurrency, particularly in relation to its market capitalization and realized capitalization. Here's a breakdown of these concepts and how MRV is used:
1. Market Value (MV)
Definition: Market value refers to the current market capitalization of a cryptocurrency, calculated MV=Price of Cryptocurrency×Total Supply
2. Realized Value (RV)
Definition: Realized value (or realized capitalization) is an alternative way to calculate the value of a cryptocurrency. Instead of multiplying the current price by the total supply, it considers the price at which each coin was last moved (i.e., the price when the coin was last traded or transacted). This represents a more accurate picture of how much the market has "invested" into the cryptocurrency.
RV=∑(Price at Last Movement of Each Coin×Number of Coins)
3. Market-Realized Value Ratio (MRV Ratio)
Definition: The MRV ratio, also known as MVRV, is the ratio of market value to realized value. It is used as an indicator to assess the overvaluation or undervaluation of a cryptocurrency. The formula is:
MVRV=MVRVMVRV = \frac{MV}{RV}MVRV=RVMV
4. How to Use MVRV in Trading
Overvalued or Undervalued?
MVRV > 1: This suggests that the market value is higher than the realized value, meaning that the cryptocurrency might be overvalued. When this ratio is too high, it may indicate a bubble, and traders might expect a correction as many investors are sitting on unrealized profits.
MVRV < 1: This indicates that the cryptocurrency is potentially undervalued, as the market value is lower than the realized value. This may suggest that the market is bearish or that most investors are holding at a loss, which could lead to a recovery as prices align with past investment levels.
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