On 5 July 2024, Santiment shared a post on the social media platform X, highlighting the Market Value to Realized Value (MVRV) ratios for several notable cryptocurrencies over a 30-day period.

Santiment is a comprehensive crypto market intelligence platform that provides insights through behavioral analytics, on-chain data, social metrics, and development activity. Established in 2016, Santiment aims to offer data-driven tools to help investors make informed decisions by analyzing market trends and investor behavior​.

Santiment’s post emphasized that the lower a coin’s 30-day MVRV is, the less risk there is in opening or adding to your position for a shorter-term timeframe. Let’s delve into what this means and analyze the specific insights provided by Santiment for each cryptocurrency mentioned.

Understanding MVRV Ratio

The Market Value to Realized Value (MVRV) ratio is a significant metric in cryptocurrency analysis, particularly for assessing Bitcoin’s market conditions. It was conceptualized by Murad Mahmudov and David Puell, following the development of the Realized Capitalization metric by Nic Carter and Antoine Le Calvez of Coinmetrics.

The MVRV ratio is calculated by dividing the market value (current market capitalization) by the realized value (the value of all coins based on the last transaction price). This ratio helps in identifying whether the market is overvalued or undervalued by comparing the current market price to the price at which coins were last moved.

Market Value (MV): This is the total value of all coins currently in circulation at the current market price. It is calculated by multiplying the current price of the cryptocurrency by the number of coins in circulation. For example, if Bitcoin’s current price is $60,000 and there are 18 million BTC in circulation, the market value is $1.08 trillion.

Realized Value (RV): This value considers the price at which each coin was last moved rather than the current price. It is the sum of the value of each coin based on the price when it was last transacted on the blockchain. This provides a historical perspective, showing the aggregate cost basis of the market participants.

MVRV Ratio = Market Value / Realized Value (i.e. Market Value divided by Realized Value)

Significance of MVRV Ratio: The MVRV ratio helps in identifying whether the market is in a state of profit or loss and can indicate potential overbought or oversold conditions.

  • MVRV > 1: When the MVRV ratio is greater than 1, it means that the market value is higher than the realized value, indicating that investors are in profit. High MVRV values can suggest that the market is overvalued and might be due for a correction.
  • MVRV < 1: When the MVRV ratio is less than 1, it means that the market value is lower than the realized value, indicating that investors are at a loss. Low MVRV values can suggest that the market is undervalued and might present a buying opportunity.

Analysis of the Chart and Specific Cryptocurrencies

Santiment’s chart and accompanying post provide a 30-day MVRV ratio comparison for various cryptocurrencies, showing their relative risk levels for dip-buying potential.

Here’s a detailed breakdown of the information:

  1. DOGE (-19.7%):
    • Analysis: Dogecoin (DOGE) has the lowest 30-day MVRV ratio at -19.7%, indicating that it is the most undervalued among the listed cryptocurrencies. This suggests that buying DOGE carries the least risk for a short-term investment. Historically, a significantly negative MVRV ratio indicates that many holders are at a loss, potentially reducing selling pressure and making it a favorable time to buy.
  2. UNI (-16.3%):
    • Analysis: Uniswap (UNI) has a 30-day MVRV ratio of -16.3%, making it the second most undervalued. This lower MVRV ratio indicates a relatively safe buying opportunity for short-term investors. When the MVRV ratio is this negative, it often means that the asset is oversold, and there could be a price rebound.
  3. LTC (-15.0%):
    • Analysis: Litecoin (LTC) shows a 30-day MVRV ratio of -15.0%. It is also considered undervalued, presenting a good dip-buying potential for short-term gains. A negative MVRV ratio like this often suggests that the asset is trading below its historical average cost basis, providing a potential entry point.
  4. ETH (-13.2%):
    • Analysis: Ethereum (ETH) has a 30-day MVRV ratio of -13.2%. This lower MVRV suggests that ETH is undervalued, offering a favorable risk/reward ratio for short-term investments. A significantly negative MVRV ratio indicates less risk as the downside potential may be limited, and the probability of a price increase is higher.
  5. LINK (-11.1%):
    • Analysis: Chainlink (LINK) with a 30-day MVRV of -11.1% is similarly undervalued, indicating a lower risk for buying in the short term. When the MVRV ratio is negative, it suggests that the current market sentiment is bearish, but it may also imply a good buying opportunity before a potential market recovery.
  6. XRP (-10.1%):
    • Analysis: Ripple (XRP) shows a 30-day MVRV ratio of -10.1%. This suggests it is undervalued, providing a good buying opportunity for short-term traders. Negative MVRV ratios indicate that the asset is being accumulated at lower prices, potentially leading to a future price increase.
  7. ADA (-9.9%):
    • Analysis: Cardano (ADA) has a 30-day MVRV ratio of -9.9%. It is slightly less undervalued than the others but still offers a reasonable dip-buying potential. A moderately negative MVRV ratio suggests that the asset is undervalued and presents a buying opportunity with a balanced risk/reward ratio.
  8. BTC (-9.6%):
    • Analysis: Bitcoin (BTC) has a 30-day MVRV ratio of -9.6%. Although it is undervalued, it presents a higher risk compared to the other cryptocurrencies listed above for short-term investments. The negative MVRV ratio indicates that Bitcoin may be a good buy, but the lower magnitude suggests it is closer to fair value compared to other assets.
  9. TON (+4.0%):
    • Analysis: Toncoin (TON) has a positive 30-day MVRV ratio of +4.0%, indicating overvaluation. This suggests higher risk and less favorable conditions for dip-buying. A positive MVRV ratio implies that the asset is trading above its historical cost basis, which could mean that it is overbought and may face selling pressure.

Chart Insights

The chart visualizes these MVRV ratios, with cryptocurrencies categorized into “Opportunity Zone” and “Danger Zone.” The “Opportunity Zone” represents cryptocurrencies with low MVRV ratios, indicating less risk and better buying opportunities. Conversely, the “Danger Zone” includes assets with higher MVRV ratios, suggesting greater risk and potential overvaluation.

Practical Applications

Investors and traders can use the MVRV ratio to:

  • Gauge Market Sentiment: Understanding whether the market is generally in profit or loss.
  • Spot Potential Reversals: High and low extremes in the MVRV ratio often precede market reversals.
  • Make Informed Decisions: Using the MVRV ratio alongside other indicators helps in making more informed trading and investment decisions.

Featured Image via Unsplash