Bitcoin’s bull market has been marked by periods of extreme exuberance, followed by sharp corrections. After reaching an all-time high of nearly $69,000 in November 2021, Bitcoin has since fallen by more than 50%. This has led some to question whether the bull market is over.
However, on-chain data from Glassnode suggests that the bottom may be approaching. The MVRV ratio, which measures the market capitalization of Bitcoin relative to its realized value, is currently at its lowest level since the March 2020 crash.
MVRV Ratio
The MVRV ratio is a measure of the market capitalization of Bitcoin relative to its realized value. Realized value is the total value of all Bitcoin transactions that have ever occurred, divided by the number of outstanding Bitcoin.
The MVRV ratio can be used to identify periods of overvaluation and undervaluation. When the MVRV ratio is high, it suggests that Bitcoin is overvalued and a correction is likely. Conversely, when the MVRV ratio is low, it suggests that Bitcoin is undervalued and a bull market may be approaching.
Historical Precedents
In the past, the MVRV ratio has been able to identify major turning points in the Bitcoin market. For example, the MVRV ratio was at its highest level ever in December 2017, just before the market crashed in early 2018.
The MVRV ratio was also at a low level in March 2020, just before the start of the current bull market.
Conclusion
The MVRV ratio is a valuable tool for identifying major turning points in the Bitcoin market. The current low MVRV ratio suggests that the bottom may be approaching and a new bull market may be about to begin.
Of course, there is no guarantee that the MVRV ratio will always be able to predict the future. However, it is a useful tool that can help investors make more informed decisions.
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S. de Vries
