MVRV stands for Market Value to Realized Value. It's a metric used primarily in the context of cryptocurrencies to assess whether an asset is overvalued or undervalued. Here's how it works:
Market Value (MV): This is the current market capitalization of the cryptocurrency, calculated by multiplying the current price by the total supply of coins.
Realized Value (RV): This is a bit more complex. Instead of using the current price, the Realized Value is calculated by taking the price at which each coin was last moved (i.e., the price when the coin was last traded). It reflects the aggregated cost basis of all holders.
The MVRV ratio is then calculated as:
MVRV=Market Value/Realized Value
Interpretation:
MVRV > 1: If the MVRV ratio is above 1, it suggests that the market value is higher than the realized value, which could imply that the asset is overvalued, and holders might be sitting on unrealized profits.
MVRV < 1: If the MVRV ratio is below 1, it suggests that the market value is lower than the realized value, indicating that the asset may be undervalued, and holders might be at a loss relative to the price they paid.
Investors and analysts use the MVRV ratio to gauge market sentiment and to identify potential buying or selling opportunities in the cryptocurrency market.
$BTC is used as a case study.
