What Is MVRV? Understanding a Key Metric for Crypto Asset Valuation

In the highly volatile cryptocurrency market, determining when an asset is overvalued or undervalued is a core challenge faced by investors. The MVRV ratio (Market Value to Realized Value) is a key on-chain metric created to address this issue. It was first introduced by analysts Murad Mahmudov and David Puell in 2018 and has since become an industry standard tool for measuring the valuation levels of cryptocurrency assets like Bitcoin.

Core Principle of MVRV: Market Value vs. Real Cost

Understanding MVRV requires breaking down its two main components:

• Market Value (MV): This is the market capitalization in traditional understanding, calculated as:

  Current Price × Circulating Supply
  It reflects the total value of assets in real-time trading and fluctuates significantly with market sentiment.

• Realized Value (RV): Also known as “actual market value,” its calculation is based on on-chain data from the blockchain:

  ∑ (price at the last on-chain movement of each token × quantity)
  It tracks the market price at the last transfer of each token and aggregates to derive the average cost basis of holders across the network. For example, if a Bitcoin was last transferred at $30,000, regardless of whether the current price rises to $60,000 or falls to $20,000, its contribution to the RV remains $30,000.

MVRV Ratio = MV / RV

This ratio reveals a core fact:

• When MVRV > 1: Market price is higher than average cost, investors are generally profitable, and the tendency to sell increases;
• When MVRV < 1: Market price is lower than average cost, investors are generally at a loss, and it may be close to the market bottom.

Why is MVRV more effective than traditional indicators?

Unlike traditional metrics such as price-to-earnings ratio, MVRV directly utilizes the transparency of blockchain to track real costs. Its advantages include:

1. Filtering out “zombie tokens” interference: Lost or long-term unmoved tokens (accounting for about 15% of Bitcoin) do not inflate the actual value estimation;
2. Reflecting psychological games: Extreme values of the metric often correspond to turning points in group emotions of “greed” or “fear,” adhering to the investment principle of “be greedy when others are fearful”;
3. Identifying market cycle stages:
   • Bull market peak: MVRV > 3 (for example, reaching 3.7 in 2017, followed by an 80% crash);
   • Bear market bottom: MVRV < 1 (for example, dropping to 0.85 in March 2020, then rebounding 600%).

MVRV Advanced Applications: Z-score and Holder Segmentation

To improve judgment accuracy, analysts developed a derivative indicator of MVRV:

MVRV-Z Score

The concept of standard deviation from statistics is introduced based on MVRV to measure the extent to which the current value deviates from the historical average. Its significance is:

• Z > 6.9: Seriously overvalued, indicating sell risk (accuracy over 94%);
• Z < 0: Seriously undervalued, a left-side buying opportunity (e.g., average return of 480% after buying during the 2022 bear market).

LTH-MVRV and STH-MVRV

Layered analysis by holding duration:

• Long-term holders (LTH, >155 days): Cost stable, accumulate tokens when MVRV is low;
• Short-term holders (STH, <155 days): Cost close to current price, significant selling pressure when MVRV is high.

This classification can predict the direction of “smart money”. For example, an increase in LTH during a low MVRV stage often indicates the formation of a bottom.

Practical Case: How does MVRV Guide Investment?

Bottom Identification (Taking Bitcoin as an Example)

• 2018 Bear Market: MVRV-Z turned negative in November, lasting for 4 months, with a maximum decline of 28%, but the rebound in the following year achieved a return of 250%;
• 2022 Bear Market: MVRV fell below 1, with Ethereum’s MVRV around 0.9 during the same period, both triggering buy signals.

Top Warning

• 2021 Bull Market: MVRV-Z broke 7, Bitcoin’s market cap plummeted after reaching $3.7 trillion;
• Dogecoin (DOGE): After MVRV approached 1 in August 2024, it surged 400%, while high MVRV indicates a risk of correction.

Limitations of MVRV and Usage Recommendations

Despite its power, MVRV is not a “magic key” and caution is needed:

1. Time blind spots: The duration of bear/bull markets cannot be predicted (the bottom range may last from 1 week to 1 year);
2. Applicability limitations: More effective for mainstream coins with rich on-chain data (BTC, ETH), less reference value for small coins;
3. Indicator bluntness: As usage becomes widespread, the critical point may fail due to self-fulfilling expectations.

Best practice recommendations:

• Combine with other indicators: such as SOPR (Spent Output Profit Ratio), net exchange flow, etc. to validate signals;
• Build positions in batches: invest regularly over 6 - 12 months in the MVRV-Z < 0 region to reduce short-term volatility risk;
• Long-term perspective: avoid using for short-term trading, focus on cyclical timing.

The core value of MVRV lies in quantifying market sentiment into trustworthy data, penetrating price noise to reveal underlying value. As on-chain analytics firm Glassnode puts it: it is the “thermometer of market cycles.” In crypto investment, rather than chasing short-term fluctuations, it is better to use MVRV to gain insights into the cycle position—when the indicator enters the green undervalued zone, it may be the moment of “others are fearful, I am greedy.”