Bitcoin (BTC), the leading cryptocurrency in terms of market value, has experienced a 100% increase in its value this year, surpassing $34,000. Despite this impressive growth, the cryptocurrency market shows no indications of overheating, which is encouraging news for traders anticipating sustained gains, as reported by blockchain analytics firm IntoTheBlock.
IntoTheBlock’s assessment is based on an on-chain metric known as the market value to realized value (MVRV) ratio. This ratio measures the difference between Bitcoin’s market capitalization and its realized capitalization.
At present, the MVRV ratio stands at 170%, significantly lower than the historical threshold of 300% that has typically signaled major market peaks.
In its weekly newsletter, IntoTheBlock stated, “The Bitcoin market value to realized value (MVRV) ratio reveals that, despite reaching yearly highs, Bitcoin is not as overheated as it has been in previous bull markets.”
The firm went on to note, “Historically, Bitcoin bull markets have reached their peaks when the MVRV exceeded 300%. Compared to the current value of 150%, this suggests that the current bull market may have further room for growth.”
Market capitalization refers to the total value of Bitcoin’s supply in circulation, calculated using the daily average price across major exchanges. Realized value, on the other hand, is considered a more accurate measure of fair value and is determined by adding the market value of coins when they change hands in on-chain transactions.
High MVRV values indicate that Bitcoin’s market price is overvalued compared to its realized or fair value, while very low values suggest the opposite.
Another factor indicating that Bitcoin’s peak may be higher than the recent high of $35,000 is the limited investor interest in trading meme cryptocurrencies like SHIB.
Despite Bitcoin’s 27% increase in value this month, the notional open interest (the dollar value locked in active SHIB perpetual contracts on Binance) has remained relatively constant at around $35 million, according to data from Coinglass. Historical data has shown that Bitcoin tends to peak when the market is gripped by meme coin frenzy, accompanied by open interest in SHIB exceeding $100 million.
However, investors should remain watchful for potential geopolitical tensions and a continuing rally in oil prices, with the possibility of prices surpassing $100 per barrel. Such developments could lead to broad-based risk aversion and exert downward pressure on Bitcoin.
IntoTheBlock cautioned, “Macro forces and potential unforeseen events could trigger a correction following the recent price appreciation.”