What is the MVRV indicator?

Key points

• The market value versus realised value (MVRV) ratio is a popular on-chain indicator that helps identify bitcoin’s price lows and tops.

• MVRV is designed to analyse long-term trends and cycles. It is used to flag two main market phases: accumulation and distribution.

• MVRV is built on the idea of a struggle between two cohorts — speculators and “hodlers”. In this context, hodlers are investors who forgo short-term gains for long-term prospects; speculators are traders chasing short-term profit. The metric helps determine which group dominates at a given moment.

Who created the MVRV indicator, and when?

MVRV is a joint creation of crypto enthusiasts Murad Mahmudov and David Puell. The indicator is their personal take on analysing bitcoin’s market cycles, described in October 2018 in a Medium blog post.

The authors were inspired by the concept of realised capitalisation, presented by Nic Carter of Castle Island Ventures and Antoine Le Calvez of Blockchain.info at the Riga Baltic Honeybadger conference in September 2018.

Subsequently, MVRV variants emerged. Using additional data and refined metrics, MVRV Z-Score and MVRV (Free Float) were developed — these are the versions that became most popular in the crypto community.

How is MVRV calculated?

MVRV is the ratio obtained by dividing market capitalisation by realised capitalisation. The metric is based on data updated daily.

Market capitalisation is the total value of all existing coins (bitcoin) at a given moment. It equals the asset’s total supply multiplied by its market price.

Realised capitalisation is a more complex variant that values each coin at the price of its last on-chain transaction. If the last movement of a given 10 BTC occurred at $20,000, then the realised capitalisation for those coins is $200,000. Capitalisation for all coins is calculated this way at the price of their last movement.

In modified versions of MVRV, variables can change. For example, MVRV Free Float replaces market capitalisation with free-float market capitalisation. The latter excludes provably lost coins or those dormant for more than five years.

How to use MVRV — and for what?

MVRV and its derivatives are used to determine long-term trends and to identify accumulation and distribution cycles. A drop of the ratio below 1 suggests active speculators outweigh long-term investors.

In Mahmudov and Puell’s view, spending many months below 1 points to an accumulation cycle. For MVRV Free Float and MVRV Z-Score, accumulation starts when the metric falls below 1 and 0, respectively.

As a level indicating a distribution cycle, the original MVRV marks readings above 3.7. In the MVRV Free Float and MVRV Z-Score modifications, distribution levels are above 3.2 and 7, respectively.

The MVRV concept assumes that a falling ratio and a growing number of dormant coins are underpinned by investors’ long-term belief in bitcoin’s technology and price appreciation. A rise to speculative levels (3.2–7) and a decline in dormant coins are viewed as a way to boost the asset’s recognition and expand its user base.

MVRV is among the most popular indicators in crypto. It is used not only by independent researchers but also by professional analytics firms such as Glassnode, Coin Metrics and CryptoQuant.

Risks of using MVRV

Despite its popularity, MVRV is an experimental tool for analysing the crypto market. Like any indicator, it carries risks for users. Some of them are below.

Indicator components

Market capitalisation and realised capitalisation, the main variables in MVRV, may lose relevance as Lightning Network and Liquid Network evolve.

These solutions allow transactions outside bitcoin’s base chain. If widely adopted, the indicator’s logic may change fundamentally and lead to incorrect conclusions.

Trading risks

Reaching any particular MVRV level is not a buy or sell signal. MVRV is not a trading indicator and is not intended to assess trader behaviour.

Interpretation

Ideally, MVRV would imply that any bitcoin movement on-chain is a purchase of the asset and its withdrawal to a personal wallet. In reality, it is impossible to know what on-chain transactions truly represent.

Transferring a hypothetical 100,000 BTC bought at $100 to another address when the price has risen to $50,000 is neither a purchase nor a sale. The user may simply have changed their storage method by sending coins to another address. But MVRV interprets such behaviour as a change of ownership and assumes the bitcoin was bought at $50,000, not $100.

Further reading

Where to track cryptocurrency prices?

What is the Stock-to-Flow model — and why is it criticised?

What is a moving average, and how is it used for cryptocurrencies?

What is dollar-cost averaging?