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Analysis of Bitcoin's MVRV Ratio and Moving Averages: Insights into Bull and Bear Markets and the Importance of the 1.5 Threshold
In January 2023, the MVRV ratio for Bitcoin broke the 1 level in an upward direction due to a substantial increase in its price, which resulted from significant accumulation in both the spot and derivatives markets. The MVRV ratio has revealed that the 1.5 level is of significant importance, serving as a crucial threshold for Bitcoin to enter its bull run. Currently, Bitcoin's MVRV has been fluctuating between 1.55 and 1.45 this month. When Bitcoin's price declined to 26.8K on April 21st, the MVRV ratio reached a monthly low of 1.36. However, it rebounded to 1.45 when Bitcoin reached back to 30k. Notably, large investors are closely monitoring the MVRV indicator to capitalize on Bitcoin dips and accumulate discounted bitcoins to fill their bags. The next step in our analysis is to apply moving averages to the MVRV ratio, which provides us with valuable technical insights. Specifically, we have implemented three moving averages, namely the 30-day simple moving average (30DSMA), the 90DSMA, and the 365DSMA. Upon examining historical data, we have observed that the Bitcoin MVRV ratio experiences a trend change when it breaks its 365DSMA. If the ratio breaks this moving average in an upward trend, it characterizes the start of a bull market, and the MVRV ratio changes direction to reach high levels, typically between 2 to 3.75 or more. Conversely, when the MVRV ratio breaks the 365DSMA in a downward trend, it signals the start of a bear market, and the ratio changes direction to reach low values of 1 or less. These patterns are clearly visible in the chart. Moreover, we have found that when the MVRV ratio breaks the 1.5 level, the 365DSMA becomes flattened before changing direction upward. Currently, it seems that we are experiencing this trend, as Bitcoin's MVRV ratio fluctuates in the range of 1.5 values. If Bitcoin breaks the 30K price level, we can expect a rapid change in its MVRV ratio, which is likely to shift to a range of values between 1.8 and 2.