MVRV Ratio: How the On-Chain Metric Works

Written by Sean GraytokUpdated: 26th Apr 2022
Share this article

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

The MVRV ratio is one of the oldest on-chain metrics in bitcoin — a whole three years old.

But what exactly is the MVRV ratio? And how can you use it to become a better investor?

Here’s everything you need to know about the bitcoin Market Value to Realized Value Ratio.

What is the Market Value to Realized Value (MVRV) Ratio?

The Market Value to Realized Value (MVRV) ratio is an on-chain metric used to assess bitcoin’s ‘fair value’ relative to its historical range.

The MVRV ratio shows the degree to which the network is over-or undervalued based on an approximation of bitcoin’s aggregate cost-basis.

The MVRV ratio essentially describes the distance between the market value and realized value of bitcoin and is most useful during extreme price movements.

An MVRV ratio greater / less than 1.00 suggests that the current bitcoin market valuation is overextended/undervalued compared to the holders’ aggregated cost base (price paid in USD to buy the coins).

MVRV is one of the original and most reliable on-chain metrics. It has effectively identified the market high of each bitcoin cycle within a two-week window.

>> More:Best Crypto Exchanges

Understanding MVRV Ratio

Let’s define the terms that make up the MVRV ratio: market value and realized value.

Market value is the bitcoin equivalent of market cap for stocks and can be calculated by multiplying the market price by the total circulating supply of bitcoin.

Realized value is calculated by valuing each unit of bitcoin individually at the price it was last transacted on-chain. It is an approximate bitcoin equivalent to cost-basis in traditional finance.

Putting the two metrics together:

MVRV Ratio = Market Value / Realized Value

Here are some examples of evaluating a given MVRV ratio:

High MVRV(+3.7)

A higher MVRV represents a greater risk of profit-taking as the market value extends beyond the value paid to acquire the coins.

Each bitcoin cycle top has eclipsed an MVRV of at least 3.7.

MVRV Closer to 1

An MVRV closer to 1 represents less risk of profit-taking because the network’s market value is closer to the USD equivalent that was paid for the coins.

Historically, MVRV has spent most of its time in the 1.1 to 3.1 range.

MVRV Equal to 1

An MVRV equal to 1 is considered ‘fair value’ and is when the market value is the same as the aggregate cost base.

On the chart below, the realized cap crosses the market value when MVRV equals 1, as there is effectively zero ‘distance’ between them.

MVRV Less than 1

An MVRV less than one indicates that the market value is less than the USD amount spent to acquire the coins, i.e., the market is significantly undervalued.

MVRV has spent very little time below 1 in Bitcoin’s history, but each time has represented a generational buying opportunity for hodlers.

MVRV Ratio Charts

Below is a chart of bitcoin’s MVRV ratio. The solid black line is the market cap, the solid orange line is realized cap, and the oscillating orange line at the bottom is the MVRV ratio.

MVRV Ratio

Here’s the MVRV ratio zoomed in on the 2013 Bitcoin cycle:

MVRV Ratio Definition

Then we see MVRV catch another top in the 2017 Bitcoin cycle:

MVRV Ratio Example

Assuming bitcoin continues to trade in four-year cycles, we’ll revisit this and add the MVRV ratio for the end of the current cycle.

Or… Super Cycle?

MVRV Ratio Special Considerations

The MVRV ratio was created in 2018 by Murad Mahmudov and David Puell after Nic Carter first shared the idea of realized value.

Mahmudov and Puell believed the ratio “provides a long-term perspective of BTC market cycles” and its ability to specifically highlight distribution and accumulation phases.

They predicted that the reliability of the upper threshold of MVRV will subside over time as market value overextends less and less above the realized cap.

However, they expected that the lower threshold would remain useful to detect undervaluation and periods of opportunistic accumulation.

This appears to be the case. However, when the MVRV ratio does dip below 1, it spends less time down there each subsequent time.

For example, MVRV was less than one for nearly a year following the 2013 cycle.

Following the 2017 blow-off top, MVRV was below one for about five months.

And most recently, the Covid-correction sunk MVRV below one for about five days.

We believe this demonstrates the Lindy Effect on Bitcoin, or the phenomenon by which the future life expectancy of some technology or idea is proportional to its current age.

In 2013, it wasn’t clear if Bitcoin would survive. But today, we know there’s a very high probability that it will be around for a while.

The duration of ‘generational buying opportunities’ with an MVRV ratio below one will likely continue to shorten as confidence in BTC increases with each passing day.

MVRV Ratio Updates

Bitcoin’s ‘market cap’ misrepresents the asset’s underlying liquidity and capitalization because of the nearly 4 million bitcoin that are permanently lost.

Therefore, the market value input in the MVRV ratio is not completely accurate.

To adjust for these lost coins and more accurately represent the available supply of bitcoin, Nic Carter and the Coin Metrics team introduced the idea of free float supply.

They use free float supply in place of total on-chain supply to calculate market value. This is one of many iterations made on the original MVRV ratio.

Another MVRV update includes the addition of a “z-score” to pull out the extremes in the data between market value and realized value, essentially adjusting for volatility.

It uses a standard deviation to achieve this and calculates MVRV slightly differently:

MVRV Z-Score = (Market Value – Realized Value) / StdDev(Market Value)

The use of the MVRV z-score has become increasingly popular in the last year.

MVRV Ratio: Frequently Asked Questions

What is the MVRV ratio?

The MVRV ratio is an on-chain bitcoin valuation metric used to assess the ‘far value’ of Bitcoin. It compares bitcoin’s market cap to its realized value, which is the aggregate amount of USD paid to acquire the coins in circulation.

What is Bitcoin MVRV?

Bitcoin MVRV refers to the market value to realized value of the Bitcoin network. It is one of the most popular pieces of on-chain data to determine whether bitcoin is over-or undervalued at a given time.

How do you calculate MVRV?

You can calculate MVRV by dividing the market value (MV) of bitcoin by the realized value (RV) of bitcoin, where MV is equal to the price of bitcoin times supply, and RV is equal to the number provided by an on-chain analytics platform, like Glassnode.

What is the MVRV z-score?

MVRV z-score is an extension of the original MVRV ratio that factors in volatility. It divides the difference between MV and RV by a standard deviation of bitcoin’s market cap. The z-score component essentially pulls out the extremes in the data.

Bottom Line: Market Value to Realized Value Ratio

The MVRV ratio has historically been one of the most accurate on-chain top indicators.

It is best used in tandem with other fundamental metrics to evaluate Bitcoin on a multi-year horizon.

Keep Reading:

This article is for informational purposes only. It is not intended to be investment advice.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.