After a sharp price rally in January, a large portion of the market entered profit for the first time in months. The price has just risen above the so-called "Realized Price," which is the average BTC price at the time each BTC token last changed, signaling the Bitcoin market's return to profitability. The price was most recently about $23,500.
According to information provided by the cryptocurrency analytics company Glassnode, the Realized Price of Bitcoin was last around $19,850. Similar to how they perceive a break above or below the 200-Day Moving Averages, technicians interpret a break above the Realized Price as an indication of a significant change in the market's medium-term momentum (which Bitcoin also recently broke decisively above).
It is far more complicated how the price of Bitcoin relates to its Realized Price and what this signifies for the future of the market. According to researchers at Glassnode, the market is poised to enter a prolonged bull or bear market or be at its top or bottom by using a number of more sophisticated models that analyze the difference between the Bitcoin price and Realized price.
And a consistent message is being sent by these measures. If the past is any indication, the medium-long term forecast for the Bitcoin market is promising.
After Falling to Historically Important Low Levels, MVRV Ratio is Recovering
A measure provided by Glassnode is the Market Value Realized Value (MVRV) Ratio. a proportion between the Realized Price and the current market, or spot, price. Then, they present ratio levels that, in their opinion, indicate the market is at an extreme: 0.8 and 1.0, below which the market is seen as extremely weak, and 2.4 and 3.2, above which the market is seen as extremely powerful.
The MVRV ratio recently rose back above 1.0, as seen in the graph above, after falling below the important 0.8 level following the collapse of FTX last year, which was a sign of serious market weakness at the time. Price bands that can be placed on the chart alongside Bitcoin's spot and realized prices can also be used to visualize the MVRV ratio. In essence, these display the levels that are 0.8 below, 2.4 above, and 3.2 times above the Realized Price.
The blue line in the following chart indicates that the price of Bitcoin is 0.8 or less of its Realized Price, and when it has dropped to that level, it has been a terrific long-term purchasing opportunity. Similarly, while the Bitcoin price has occasionally been able to rise above its Realized Price by 3.2 or more times, in the medium term, there have often been substantial declines from the market top.
The MVRV Momentum Is Likewise Positive
If the Bitcoin price has reached extremes in relation to its realized price, it can be seen from the aforementioned graphs. In addition, Glassnode offers the MVRV oscillator, which may be used to predict whether the Bitcoin market is poised to enter a protracted bullish or negative phase.
The 100-Day Simple Moving Average (SMA) of the MVRV Ratio is also plotted by Glassnode in the graph below. They point out that historically, when the MVRV ratio has been above its 100-Day SMA, the Bitcoin price has been in a bull market, and when it has been below its 100-Day SMA, a bear market has usually been in progress.
By dividing the MVRV Ratio by its 100-Day SMA and then by one, Glassnode in the graph below enhances the oscillator shown above. In the MVRV Ratio, negative scores correspond to negative momentum, and vice versa. Transitions from periods where MVRV momentum has been negative for a while, like as in 2012, 2015, 2019 and 2020, have all been unmistakable signs of an impending and frequently lengthy Bitcoin bull market.
Meanwhile, historically, the beginning of protracted bear markets has also seen a change from an extended period of positive MVRV momentum to negative. The accompanying chart shows that the MVRV Ratio momentum has recently become positive (i.e. the ratio moved above its 100-Day SMA). This is a significant bullish indicator for the price of bitcoin if history is any indication.