TLDR: The Market Value to Realized Value (MVRV) measures the unrealized profit or loss of an asset. The higher this number, the more the market as a whole is in profit. Sharp peaks with values above 3 (where the market is more than 200% in profit) have historically coincided with bull market tops.
Let’s say you’re a high net worth individual (hopefully we are all, after the current bull market) and want to buy an expensive work of art, let’s say a Picasso.
Before you reply to an offer, you obviously want to know the price at which this painting exchanged hands last time. If the price of the current offer is much higher than the last time the painting was sold, it could mean that the art market is a tad overheated and you might be overpaying.
Alternatively, if the price is lower than the last time the painting changed hands, you might have a good deal on your hands.
Origin and Definition
The MVRV metric was first conceived by on-chain pioneers Mahmudov and Puell (known from the Puell multiple), in October 2018. The metric has become an often-used Bitcoin analysis tool ever since.
What does the abbreviation stand for?
- Market Value (MV): the present market capitalization of a cryptocurrency, calculated as the current price multiplied by the circulating supply.
- Realized Value (RV): the price at which each coin last moved. Realized Value takes the price of each Bitcoin the last time it was sent from one wallet to another wallet. It then adds up all those individual prices and takes an average of them. It then multiplies that average price by the total number of coins in circulation.
Here’s a graph that has the market value in blue and the realized market value in orange.
As you can see, the orange line acts like a slow-moving average. It always lags the price. As the market over the years is in an uptrend, realized value is generally lower than market value.
What MVRV does, is it then divides MV by RV.
Examples
You can think of the MVRV indicator as a yardstick to measure the overheatedness or (let’s say) frostiness of the current price. As mentioned, MVRV stands for Market Value (MV) to Realized Value (RV). It’s the ratio between Price, and the Realized Price.
In the imaginary case of wanting to buy a certain Picasso, let’s say it was sold for 50 million dollars a year ago and the current bid is 75 million dollars. Then the MVRV has a value of 75/50 = 1.5. That sounds like an overheated market but it’s child’s play for crypto markets, as we shall see.
MVRV can be thought of as a measure of ‘Unrealized Profit’ held within the supply.
- An MVRV of 2 means the price is 2 times the realized price (100% profit)
- An MVRV of 1 means the price is equal to the Realized price (no profit, no loss)
- An MVRV of 0.75 means the price is 0.8x the Realized Price (-25% Loss).
But wait, in the example we talked about individual paintings, analogous to NFTs in the crypto world. How can this apply to normal currency, aka fungible tokens? Well, the movement of each UTXO on Bitcoin (each ‘coin’) is tracked on the Bitcoin blockchain. It can be determined exactly when each coin moved last on-chain and the corresponding price can be looked up.
For example, if you bought 1 bitcoin for $10,000 in 2020, the blockchain…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
