Bitcoin MVRV ratio approaches historical undervaluation zone

The Bitcoin price is currently at $63K, a rise of 0.5% in the past 24 hours. According to an analysis by CryptoQuant analyst DanCoinInvestor, the MVRV ratio of Bitcoin is at a notable level: 1.1. That is just above the green zone that historically coincides with major market bottoms. In other words, Bitcoin is approaching an area where it has historically been cheap to enter.

Bitcoin is available at OKX and Bybit.

What is the MVRV ratio and why is it important?

The MVRV ratio compares the market value of Bitcoin with the so-called realised value. The realised value is based on the price at which each Bitcoin last moved on the blockchain. A ratio around 1.0 or lower means the average holder is making a loss, which historically signals a buying opportunity.

The graph from CryptoQuant shows that the MVRV ratio in previous cycles, such as around 2015, 2019 and 2022, briefly dipped below 1.0 before a strong recovery followed. The red zone at the top of the graph, around 4 to 6, typically marks the euphoric peaks of a bull market. With a current value of 1.1, Bitcoin is far from that overheated zone and close to the historically cheap area.

Bitcoin in a cheap zone?

The analysis aligns with a broader picture of caution in the market. Earlier it was reported that losses in the Bitcoin bear market are heading towards a record of $211 billion, while the Bitcoin price hit the bottom of a four-month range after a sharp decline. At the same time, the founder of Glassnode states that the real Bitcoin bottom lies between $46.000 and $54.000, suggesting that there is still room to the downside before a definitive bottom is reached.

The MVRV ratio of 1.1 thus gives a mixed signal. On the one hand, it points to historically low valuations and a potential buying opportunity for long-term investors who want to buy Bitcoin. On the other hand, the ratio has not yet dipped into the official undervalued zone, meaning there is not yet a confirmed bottom. Investors who closely follow the Bitcoin price therefore keep a close eye on the MVRV ratio.