The MVRV indicator favored by top investment research institution Messari, does it show that BTC has hit bottom?

Today's data sharing is more like a teaching article. I hope it will be helpful to my friends who have given me affirmation and support along the way. Without further ado, let's get to the point.

I believe many of you are very familiar with the following picture. Yes, it is the MVRV (Market Value to Realized Value Ratio) that everyone often pays attention to and discusses. I also mentioned in my top post that the top investment research institution Messari also uses MVRV as an important basis for judging the top/bottom of the cycle.

“Whenever MVRV reaches or exceeds 3, it is the best time to sell BTC; whenever MVRV is below 1, you can sell a kidney to buy BTC.” Although it is a bit exaggerated (foreigners’ sense of humor), the logic is correct.

Now let's look at this data. The MVRV value is 2.2, which is neither higher than 3 nor lower than 1. It does not seem to have much reference value for operation. But if we can correctly understand the true meaning of MVRV, perhaps we can do something.

The so-called MVRV is the ratio of "circulating market value" divided by "realized market value", or more simply understood as dividing the market price (Price) by the realized price (Realized Price). The "realized price" is the average cost of the BTC on-chain turnover in circulation; therefore, the real meaning of MVRV is whether the transaction price of BTC is too high or too low relative to the "fair price"?

For example, when MVRV reaches 3.2, it means that the current price has allowed investors to earn an average profit of 320%; when MVRV falls to 0.8, it means that the current price has caused investors to lose an average of 20%.

According to this understanding, we remove the long-term holders (LTH) from the MVRV, because LTH always maintains higher profits during the bull market, so it will pull up the mean of MVRV. After the removal, only short-term holders (STH) remain in the MVRV, which is the Short Term Holder MVRV shown in the figure below.

By observing the data, we can find a very "magical" phenomenon. In the bull market, whenever STH-MVRV is close to 1 or slightly lower than 1, it is often a stage bottom area.

For example: 2023.3.10, STH-MVRV 1.02, soon after #BTC rose from 20,176 USD to 28,000 USD; 2024.1.22, STH-MVRV 1.03, soon after #BTC rose from 39,450 USD to 51,000 USD.

According to the true meaning of MVRV that I explained above, we can understand the logic behind this phenomenon.

The fall of STH-MVRV to 1.02 means that the current price has almost wiped out all the floating profits of short-term holders. Most people will choose to hold the currency and lie flat (reluctant to sell), because everyone will think: there is no need to be afraid of being trapped in the bull market, and the worst thing is to lose time. Once the consensus is reached, a "support effect" will be formed here.

For another example, during the period from August 18, 2023 to October 13, 2023, the STH-MVRV value dropped to a minimum of around 0.90, which means that the current price has caused short-term holders to lose an average of about 10%. This situation attracted a large amount of wait-and-see funds to enter the market to buy the dips the bottom (fund rush). Lu Xun once said: There is no bottom in the market, but when more people buy, it becomes the bottom. Therefore, the position of $26,000 has become the second bottom range in this cycle besides the historical bottom of $16,000.

As of April 17, 2024, STH-MVRV has fallen to 1.04, which has entered the "sensitive area". The current price of BTC is still suppressed by emotions. Taking historical phenomena as a reference, if some friends start buying in batches here, it is also a cost-effective choice. However, if you are worried that external events will continue to ferment and hit market confidence, you can also wait for STH-MVRV to fall below 1, which will be a safer position, but the risk is to miss a suitable opportunity.

How to choose is up to you to decide. In any case, please maintain a cautious and optimistic attitude!