On-chain data shows the Bitcoin MVRV triple ribbon has once again formed a signal that has lead to an average of 30% decline during previous instances this year.
Bitcoin MVRV Triple Ribbon Shows Bearish Signal Formation
As pointed out by an analyst in a CryptoQuant cryptoquant.com/quicktake/63025d830ccf3c1e21c898e8-MVRV-Triple-Ribbon-forms-another-signal-foreshadowing-a-local-fall">post, the latest trend in the BTC MVRV triple ribbon may suggest the crypto will observe another local drawdown soon.
Before looking at what “MVRV” is, it’s best to first take a look at the two major types of capitalization methods for Bitcoin.
The first cap, the usual market cap, is calculated by multiplying each coin in circulation with the current BTC price (or more simply, it’s just the total number of coins in circulation, multiplied by the price).
Where the other capitalization model, the “realized cap” differs is that instead of all the coins being weighted against the latest value of the crypto, each coin is multiplied by the BTC price that was there at the time of the coin’s last movement.
Now, MVRV is just the ratio between these two Bitcoin caps (market divided by realized). Historically, this metric has indicated when the value of BTC has been undervalued, and when it has been overvalued.
Here is a chart that shows the trend in three different MVRV moving averages (10-day, 15-day, and 20-day) during the last few months:
Looks like the 10-day MA curve is passing under the 15-day MA line | Source: CryptoQuant
These three moving averages of the indicator together form the “MVRV triple ribbon.” And as you can see in the above graph, the trend in this triple ribbon has had some interesting implications on the Bitcoin price during the last few months.
Whenever the 10-day MA has crossed below the other two MAs, the price of the crypto has observed a sharp decline in the near term.
In this year so far, each of these MVRV triple ribbon crossovers has resulted in a 30% average drawdown for the value of BTC.
From the chart, it’s apparent that this pattern once again seems to be forming for the indicator. If this is indeed the same signal as the previous occurrences, then Bitcoin may face more fall in the near future.
At the time of writing, Bitcoin’s price floats around $21.2k, down 12% in the past week. Over the last month, the crypto has lost 9% in value.
The below chart shows the trend in the price of the coin over the past five days.
The value of the crypto seems to have plunged down a few days back | Source: BTCUSD on TradingView
Featured image from Thomas Bonometti on Unsplash.com, charts from TradingView.com, CryptoQuant.com