Here’s what Bitcoin’s legendary Market Value to Realized Value (MRVRV) ratio says about whether Bitcoin is currently overheated or not.

Bitcoin MVRV has increased with the recent rally

In a miniature summary of CryptoQuant postthe analyst discussed Bitcoin’s MVRV. The “MVRV Ratio” is an on-chain metric that tracks the ratio between Bitcoin market cap and realized cap. Market capitalization here is simply the total valuation of the circulating supply of BTC at the current spot price. The second metric, realized limit, is also an asset capitalization model, but it does not work as simply.

Unlike market cap, this model does not set the same price for every coin in circulation; rather, it assumes that the last price at which the token was traded represents its “true” value.

The previous transaction in any coin will likely represent the last time it changed hands, so the realized limit essentially includes the sum of the costs of all tokens in circulation.

One way to look at this model is as a measure of the amount of capital that investors as a whole have put into the cryptocurrency. Market capitalization, on the other hand, represents the value these holders bring in the present.

When the MVRV ratio is greater than 1, it means that the market capitalization is currently higher than the realized capitalization. This trend suggests that investors as a whole are in a net gain state.

On the other hand, an indicator below this mark means that the average holder is currently underwater because they are holding their coins at a value below the price at which they purchased them.

As shown in the chart above, Bitcoin’s MVRV increased to significant levels as BTC in the first quarter of the year broke through the all-time high (ATH) from November 2021. The enhance in this indicator also occurred with the recent ATH breakout, but this indicator is clearly not yet near the same level as at the beginning of the year.

Historically, the cryptocurrency has made highs whenever the indicator has risen to a high level. However, as shown in the graph, the “high” MVRV level has been sinking over the last few cycles.

If the trend line drawn by the analyst holds, then the current cycle should peak around the point where the MVRV ratio reaches a value of around 3. Currently, the ratio is 2, so it may still be some time before Bitcoin becomes available as it overheats.

As for why assets tend to overheat when MVRV increases rapidly, the reason is that investors become more and more willing to participate in profit-taking the larger their profits are.

BTC price

At the time of writing, Bitcoin is trading at around $74,100, up almost 8% in the last 24 hours.