MVRV Ratio: When Is Bitcoin Undervalued or Overvalued?

When is bitcoin undervalued or overvalued according to the MVRV ratio? The MVRV ratio divides the market value of all bitcoin by their "realized" value, roughly what today's holders paid on average. Below 1, the market as a whole is at a loss: that was the case at the lows of late 2018, March 2020 and 2022. Above 3.7 was where cycle tops used to sit. That upper threshold already failed in 2021; the lower one has held so far.

A short explanation of MVRV and the realized price is already in the overview Bitcoin price models compared. This article goes deeper: how the realized cap is built, what the MVRV Z-score does differently, how well the well-known thresholds have held and how MVRV relates to this site's valuation zones.

The realized cap: what all holders paid

The ordinary market capitalisation multiplies all bitcoin by today's price. That pretends every holder bought their coins yesterday. The realized cap instead asks of every single coin: at what price did it last move?

This is possible because bitcoin consists of individual unspent transaction outputs, the UTXOs. Each carries a timestamp. The realized cap values every UTXO at the price on the day it was created and adds everything up.

Nic Carter and Antoine Le Calvez of Coin Metrics presented the idea in 2018. Their argument: the realized cap is closer to what was actually invested. Coins that have not moved since 2011 count only at the 2011 price, not today's. Lost coins thus lose weight.

Divide the realized cap by the number of bitcoin and you get the realized price, the average cost basis of all coins, measured at their last movement.

The example already shows the most important limit: an average over all holders hides that individual groups are in very different positions.

What the MVRV ratio tells you

Murad Mahmudov and David Puell published the MVRV ratio in October 2018, using data from October 2010 to September 2018. Their reading:

• MVRV below 1: market value is below what holders paid on average. Anyone selling now mostly realises a loss. Sellers become scarce; the speculators have left. The authors read longer stretches below 1 as accumulation.
• MVRV well above 3: almost all holders sit on large gains. The urge to sell rises. In their data, values above about 3.7 coincided with cycle tops.

The logic is behavioural: people dislike selling at a loss and like selling at a big gain. MVRV measures how much profit sits in the market and thus how much selling pressure can build up.

The MVRV Z-score: the same idea, scaled differently

A week after the original article, on 9 October 2018, the analyst using the pseudonym Awe & Wonder introduced the MVRV Z-score. It measures the gap between market value and realized cap not as a ratio but in standard deviations of market value over the whole history.

The advantage: an extreme swing is measured against past volatility, not a fixed number. In the common charts, a Z-score above 7 counts as the red zone, below 0 as the green one. The drawback: the standard deviation grows with every cycle in which market value rose strongly. The older bitcoin gets, the harder it is for the Z-score to reach the old extremes.

How well have the thresholds held?

The lower threshold has held so far. MVRV fell below 1 in late 2018, briefly in the Covid crash of March 2020, and stayed below it for months from mid to late 2022. Each time this was, in hindsight, a good area to buy. But these phases sometimes lasted months, and the price kept falling during them.

The upper threshold has not held. At the November 2021 top, MVRV stood at roughly 3, clearly below the 3.7 that used to mark a top. Anyone waiting for 3.7 never sold. In the following cycle the peaks stayed lower still.

The reason is the same one this site observes with the Power Law: each cycle has less excess. The realized cap grows every cycle, because many coins are revalued at high prices. The margin by which market value can exceed it shrinks.

MVRV and the Power Law zones compared

This site's Power Law model compares the price with a trend that depends only on time. MVRV compares it with the holders' cost basis. Two completely different yardsticks, and yet at the important turning points they often show the same thing.

The Power Law values come from the site's daily data, the MVRV figures from the on-chain providers' charts, rounded.

Three differences matter for you:

1. The Power Law has a falling upper limit built in. The top band moves closer to the trend every year. MVRV has nothing like that; you have to adjust its thresholds yourself.
2. MVRV reacts to behaviour. If many people buy at a top, the realized price rises quickly. The Power Law knows nothing of that; its floor rises steadily every day.
3. In 2018 they differed. MVRV said "cheap" while the price was still a third above the floor. Anyone who only wanted to buy at the floor missed out in 2018. Anyone watching for MVRV below 1 did not.

When both signals coincided, as in November 2022, that was historically the best buying area. Where the zones are today:

What MVRV cannot do

It does not know the real cost basis. The realized cap only knows a coin's last movement. If someone sends their bitcoin from an exchange to their own wallet, the coin is revalued although nobody bought. The same happens when an exchange or ETF custodian reshuffles coins internally.

Lost coins distort it. An estimated several million bitcoin are lost forever. They count in the realized cap at their old, low prices and pull the realized price down.

Off-chain trading is missing. If someone buys ETF shares or bitcoin on an exchange without withdrawing, the realized cap does not change. As with the NVT ratio, MVRV only sees what happens on the blockchain.

It says nothing about time. MVRV below 1 can last a year. In 2022 it was below 1 from the summer; the low only came in November.

Variants: MVRV for short- and long-term holders

Data providers such as Glassnode split MVRV by coin age. Coins younger than 155 days count as short-term holders, older ones as long-term holders.

• STH-MVRV shows whether new buyers are in profit or at a loss. If it falls below 1, the buyers of recent months are under water. That happens in almost every larger correction.
• LTH-MVRV shows how much profit long-term holders carry. High values mean they have a lot to sell if they want to.

The same split into short- and long-term holders is used by SOPR. How coins are distributed across age groups is shown by HODL Waves.

How to use MVRV as a long-term holder

1. As a second opinion in a bear market. MVRV below 1 with the price near the floor has historically been a good time to deploy a reserve. What such a plan looks like is shown in Buying bitcoin in a bear market.
2. Not as a sell signal with a fixed number. The upper thresholds have been unreliable since 2021.
3. With a savings plan, not instead of one. If you buy every month and a little more only in cheap phases, you need no exact signal. What a steady plan has delivered so far is shown by the savings plan calculator.