On 19 June 2024, Santiment, a renowned crypto analytics firm, posted on social media platform X about the 30-day Market Value to Realized Value (MVRV) ratios of several major cryptocurrencies. The tweet, accompanied by a detailed chart, emphasized the current undervaluation in the crypto market and predicted potential short-term price movements.

What is MVRV Ratio?

The Market Value to Realized Value (MVRV) ratio is a metric used in cryptocurrency analysis to assess the profitability and market sentiment of an asset. It is calculated by dividing the market capitalization (market value) by the realized capitalization (realized value). The realized value is the sum of the values at which each coin was last moved (i.e., bought or sold).

  • Market Value: The current price of the cryptocurrency multiplied by the total supply.
  • Realized Value: The value of all coins in supply at the price they last moved, which is an indication of the true cost basis of investors.

Understanding MVRV Ratio

  • Market Value: This is the current total value of all coins in circulation, calculated by multiplying the current price by the total supply of the coin. For example, if there are 1 million coins in circulation, and each coin is worth $2, the market value is $2 million.
  • Realized Value: This is a bit more complex. It considers the price at which each coin was last moved. If someone bought a coin at $1 and then sold it when it was worth $2, the realized value would account for that initial $1 price. It’s essentially the aggregate cost basis of all holders.

The MVRV ratio thus indicates how much the current price exceeds or falls below the average purchase price of the coins.

Key Insights from Santiment’s Post

Santiment’s tweet provided the 30-day MVRV ratios for six major cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), XRP, Dogecoin (DOGE), Toncoin (TON), and Cardano (ADA). Here’s what the MVRV ratios indicate for each:

  1. Bitcoin (BTC): -4.0% (Mild Bullish)
    • The MVRV ratio of -4.0% suggests that Bitcoin is mildly undervalued. Investors holding BTC over the past 30 days are at a slight loss, indicating a mild bullish sentiment for potential short-term gains.
  2. Ethereum (ETH): -4.3% (Mild Bullish)
    • Ethereum’s MVRV ratio of -4.3% also indicates it is mildly undervalued. Similar to Bitcoin, ETH holders are at a minor loss, which could lead to a short-term price increase.
  3. XRP: -3.5% (Mild Bullish)
    • XRP’s MVRV ratio of -3.5% shows a mild undervaluation. This slight loss for recent investors suggests a potential for a mild bullish reversal.
  4. Dogecoin (DOGE): -16.7% (Very Bullish)
    • Dogecoin’s significant undervaluation, with an MVRV ratio of -16.7%, indicates that it is deeply undervalued. This large loss for DOGE holders suggests a strong potential for a price bounce, making it a very bullish indicator.
  5. Toncoin (TON): -0.6% (Neutral)
    • Toncoin’s MVRV ratio of -0.6% is nearly neutral. This indicates that the market price is close to the realized value, suggesting a balanced sentiment with no strong expectation of a significant short-term price move.
  6. Cardano (ADA): -12.6% (Very Bullish)
    • Cardano’s MVRV ratio of -12.6% shows it is significantly undervalued. This substantial loss for ADA holders implies a very bullish outlook, with a high likelihood of a price rebound.

Detailed Explanation of the Chart

The accompanying chart from Santiment provides a visual representation of these MVRV ratios along with the price trends of the respective cryptocurrencies. Key elements of the chart include:

  • Price Trends (Candlesticks): The candlestick patterns show the price movement over the past month, highlighting peaks and corrections.
  • MVRV Ratios (Colored Lines): Each cryptocurrency’s MVRV ratio is illustrated with a distinct colored line, indicating how undervalued or overvalued they are.
    • Bitcoin (BTC): Orange line showing -4.0%
    • Ethereum (ETH): Blue line showing -4.3%
    • XRP: Purple line showing -3.5%
    • Dogecoin (DOGE): Red line showing -16.7%
    • Toncoin (TON): Gray line showing -0.6%
    • Cardano (ADA): Green line showing -12.6%
  • Average Wallet Returns: The chart includes annotations pointing out the average returns of active wallets for each cryptocurrency over the past 30 days. For instance, DOGE wallets have an average return of -16.7%, while ADA wallets have an average return of -12.6%.

What Does This Mean for Investors?

According to Santiment, the lower a cryptocurrency’s 30-day MVRV ratio, the higher the likelihood of a short-term price bounce. This analysis suggests that cryptocurrencies like Dogecoin and Cardano, with significantly negative MVRV ratios, have a high potential for price increases. In contrast, Bitcoin, Ethereum, and XRP show mild bullish potential, while Toncoin remains neutral.

Implications for Each Cryptocurrency

  • Dogecoin (DOGE) and Cardano (ADA) are flagged as very bullish due to their significant undervaluation. Investors might see these as opportunities for potential gains if the market corrects upwards.
  • Bitcoin (BTC), Ethereum (ETH), and XRP are seen as mildly bullish, suggesting moderate potential for upward movement.
  • Toncoin (TON) remains neutral, indicating no strong expectation of a significant price change in the short term.

Investors should use this information to gauge market sentiment and make informed decisions. However, it’s important to remember that the cryptocurrency market is extremely volatile and risky, and these predictions are based on historical data and current market conditions.

Featured Image via Pixabay