The blockchain makes it possible to analyze the Bitcoin asset in detail. Today we will do that on the basis of the Market Value to Realized Value. That sounds like an exciting set of concepts, but in fact you divide the current price for Bitcoin by the average value at which all Bitcoins last changed addresses.
If the current rate is $20,000 and the average purchase value of all Bitcoin is $40,000, then we have an MVRV of 0.50.
Why is this relevant?
The chart below may already give some indication that this data, at least in the past, has proven to be relevant for forecasting price bottoms. We make it a bit more complex in this case by bringing the MVRV of short-term holders (blue line) and that of long-term holders (red line) into play. We qualify people as short-term holders if they own their Bitcoin for less than 155 days and vice versa.
What you can see in the chart is that Bitcoin found a bottom in the previous two bear markets after the red line crosses the blue up. In that case, the cost basis for long-term holders is slightly higher than that of short-term holders.
Exactly that phenomenon is happening right now, making it quite possible that we are heading towards the end of the bear market. There is of course no such thing as certainty, especially when it comes to on-chain analysis, but in the past this indicator has proven to be a reliable tool.
The same phenomenon in a different graph
The Dutch analyst Root, who can be found on Twitter under @therationalroot, previously noted the same development. He makes no further comment, except for a reference to previous Bitcoin cycles. Here you see the same pattern, namely that the bear market is in the final phase every time when these two indicators cross.
In that respect, this is a more than positive sign for the coming weeks to months. The only caveat to note is that macroeconomic conditions are dominating the market this year.
The US Federal Reserve has a major influence on the market with its interest rate decisions and a lot will depend on them, especially in the coming weeks to months. Do not view this type of analysis as an exact science, but more as a tool to determine your strategy for the coming period.