What is MVRV & NUPL
MVRV, Market-Value-to-Realized-Value Ratio, is a ratio between the nominal market value and the realized value of an asset. It can be used to assess the cycle of the crypto market.
NUPL, Net Unrealized Profit/Loss, is an indicator that measures the net unrealized profit/loss in the crypto market. It can be used to evaluate the market's current profitability or loss state.
The formulas for MVRV and NUPL are based on the nominal market value and the realized value of the asset. The formulas are as follows:
MVRV Ratio = Market Cap / Realized Cap
NUPL = (Market Cap - Realized Cap) / Market Cap
- Market Capitalization = Nominal Market Value = Total asset supply * Current market price
- Realized Capitalization = Realized Value = Total asset supply * Asset price at the last activity
Note: Realized Cap is valued based on the price at the asset's last activity, not the current market price. For example, if a Bitcoin last moved in 2013, its price for calculation purposes would be the price of Bitcoin in 2013. This calculation method helps mitigate the impact of lost or long-term illiquid assets and reflects the asset's actual cost basis.
By comparing the differences between the nominal market value and the realized value, MVRV and NUPL can be used to understand when the asset's price is higher or lower than its cost basis, thus assessing the market's profitability. Additionally, extreme differences between nominal and realized value can be used to identify market tops and bottoms and reflect significant market cycle changes.
The MVRV ratio is commonly used to analyze the profitability of the market and provide signals for market cycle trends. Its value corresponds to the downturn or upturn trends of the market.
High MVRV Value: Bearish Signal
A high MVRV value indicates that the nominal market value of the asset is higher than its realized value. The majority of asset holders are in a profitable state. In this scenario, people often sell their assets to realize immediate profits. As a result, the number of sellers in the market increases significantly, leading to oversupply and an increased probability of subsequent price declines.
Historically, an MVRV value greater than 3.5 is an extreme level indicating a potential market top and a bearish signal. For example, on November 10, 2021, when Bitcoin reached its all-time high (ATH) price of $67,000, the MVRV ratio was 2.72. Following this, the price of Bitcoin rapidly declined, and the market gradually entered a bear market.
Low MVRV Value: Bullish Signal
A low MVRV value indicates that the nominal market value of the asset is lower than the realized value. The majority of asset holders are in a loss-making state. In this scenario, people generally hold onto their assets rather than sell at a discounted price. As a result, the number of sellers in the market decreases significantly, leading to undersupply and an increased probability of subsequent price increases.
Historically, an MVRV value lower than 1.0 indicates the potential market bottom and a bullish signal. For example, on November 10, 2022, Bitcoin price dropped to its lowest point after the ATH due to the FTX bankruptcy incident, around $16,000, and the MVRV ratio fell to 0.84. After reaching the MVRV bottom, the price gradually recovered to $26,000.
NUPL is commonly used to assess whether the current market is in a profit or loss state. It helps evaluate the market cycle and provides buy/sell signals for investors.
NUPL > 0 indicates a net profit state in the market, while < 0 indicates a net loss state. Generally, the further away the NUPL value is from 0, the closer the market is to the top or bottom.
- When the NUPL value is positive and high, it means that the majority of Bitcoin holders are in a profitable state. The market is approaching the top. It indicates a sell signal.
- When the NUPL value is negative and low, it means that the majority of Bitcoin holders are at a loss. The market is approaching the bottom. It indicates a buy signal.
Historically, a NUPL value above 0.75 indicates the market top, while below -0.25 indicate the market bottom. Positive NUPL values indicate positive market sentiment and increasing optimism, while negative NUPL values indicate negative market sentiment and increasing pessimism.
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