On-chain data shows that Bitcoin has recently surpassed the Market Value to Realized Value (MVRV) ratio level that has historically indicated overheated conditions.
Bitcoin has crossed the highest MVRV deviation pricing range
In its latest weekly report, the analytics company weighed in on the series Vitreous node We discussed what Bitcoin looks like now from a pricing model perspective based on the MVRV ratio.
The MVRV ratio is a popular BTC indicator that tracks the ratio between an asset’s market cap and its realized value. The last one here is an on-chain capitalization model that briefly tells us how much capital investors as a whole have used to purchase their tokens.
Since the MVRV ratio compares this initial investment to the value currently held by investors (i.e. market cap), it essentially provides information about the profitability of addresses on the BTC network.
Now, the pricing model created by Glassnode does not directly use the MVRV ratio itself, but rather some standard deviations (SDs) from its mean. Below is a diagram of this model that the analytics company shared in the report.
In this model, pricing levels correspond to Bitcoin prices where the MVRV ratio reaches a value equal to a certain SD above or below its mean. At a level of +0.5 SD, for example, the MVRV is 0.5 SD larger than its mean value.
From the chart, it appears that Bitcoin price has crossed the highest part of the pricing bands in this pattern in its most recent run. The level in question is +1.0 SD, which is equivalent to $90,200 at the moment.
Historically, Bitcoin has tended to form tops when its price exceeds this pricing range. The reason behind this is the fact that at such high levels of MVRV, investors hold a significant amount of profits, so mass selling motivated by profit taking can become a real possibility.
The last time the cryptocurrency crossed this barrier was in the first quarter of this year. As can be seen in the chart, it did not take long for the price to reach the top at that time.
However, in full-blown bull markets in the past, Bitcoin has generally persisted within this overheated zone for notable periods of time before peaking. An example of this trend is also highlighted in the chart; The first half of 2021 saw the currency stay in the zone for a few months thanks to high capital inflows.
As such, it is not necessary for Bitcoin to immediately reach a cyclical top after becoming overheated in this pattern.
Bitcoin price
Bitcoin rose past the $98,000 level earlier last day, but the coin appears to have suffered a minor setback as it is now back at $97,500.