MVRV Ratio is a valuation metric that compares the current market capitalization (Market Value) of Bitcoin to its Realized Capitalization (Realized Value). The Realized Capitalization is calculated by valuing each bitcoin at the price it was last moved, rather than the current price. This approach provides a more stable measure of Bitcoin's economic weight, excluding the speculative fluctuations seen in the market capitalization. A high MVRV Ratio suggests that Bitcoin's price is inflated above its 'real' value, indicating overvaluation. Conversely, a low MVRV Ratio implies that the price is below its realized value, suggesting undervaluation.
Realized Price is derived from the Realized Capitalization, dividing it by the total number of bitcoins in circulation. It represents the average acquisition price of all bitcoins, providing a baseline for assessing the current price's deviation from this average cost basis.
The FMV model specifically examines the MVRV Ratio in relation to the Realized Price (MVRV-R / Realized Price), offering a nuanced perspective on market conditions:
- When the MVRV-R / Realized Price is significantly high, it indicates that the current market price is greatly exceeding the average price at which bitcoins were acquired. This scenario is interpreted by the FMV model as the market being "overheated," with a high likelihood of a corrective downturn, thus producing a HIGH Price Indicator.
- Conversely, if the MVRV-R / Realized Price is low, suggesting that the current market price is much closer to, or even below, the average acquisition price, the FMV model interprets this as the market being "undersold." In such cases, there is potential for price appreciation, leading to a LOW Price Indicator.