An often-used measure of value in technical analysis and a more recent valuation metric specific to on-chain analysis are at odds at the moment. Each is relevant, depending on how fast an investor is looking to generate gains.
The more recent, bitcoin’s MVRV (market-value-to-realized-value) ratio, measures the ratio of BTC’s market capitalization to its realized capitalization. It implies BTC is trading cheaply on a relative basis and foreshadows likely future trends.
MVRV readings above 3.7 indicate that an asset is overvalued, while readings below 1 indicate that an asset is undervalued.
With a current reading of 0.85, bitcoin’s MVRV ratio has fallen to levels last seen in 2019, implying that current prices present a compelling entry point for long biased investors. For context, BTC prices were trading sub $5,000 during that time period.
Bitcoin’s MVRV ratio 12/6/22 (CryptoQuant)
Bitcoin’s current relative strength index (RSI), however, implies that BTC’s price is fairly valued, given its current reading of 48. RSI ranges from 0-100, with readings above 70 implying that prices are overvalued and those below 30 indicating the opposite. RSI’s reflect likely, immediate price movement.
Despite the neutral reading, a look at historical pricing when BTC’s RSI trades at or around 48 shows a hint of promise. In over 120 occurrences since 2015, following a reading between 47 and 49,BTC has increased on average 6% after 90 days and 2% after seven days.
A look at BTC’s Bollinger Bands shows a series of six consecutive narrow-range trading days, with prices briefly touching the upper range of its bands and now trending in the direction of the 20-day moving average.
The narrow trading range implies a lack of conviction among traders. The reversion to the 20-day average suggests that BTC is trading relatively close to where it should be.
To be sure, the discrepancy between the indicators is small.
MVRV holds primary relevance for investors, who tend to look longer term for payoffs. RSI and Bollinger Bands are most relevant for traders, who seek to accumulate gains more quickly.
Ultimately, the MVRV ratio appears to be a valid indication of BTC’s current intrinsic value. Technical indicators such as the RSI and Bollinger Band indicate the length of time in which BTC will remain undervalued.
Investors who are long bitcoin have an opportunity to acquire bitcoin as it trades near three-year lows relative to its realized value, but only if they can tolerate current price levels, which are unlikely to move much for the foreseeable future.
