Bitcoin on-chain metric suggests 2017-style bull run will continue

Published at: Nov. 4, 2021

Bitcoin's (BTC) pullback from its record high of $67,000 to below $60,000 has not deterred bulls from eyeing another peak level ahead, per an indicator that attempts to predict market bottoms and tops.

Dubbed MVRV, the risk metric represents the ratio of Bitcoin's market value to its realized value — similar to the price to book (P/B) ratio that compares a company's market value to its book value. In doing so, MVRV attempts to identify whether an asset is under or overvalued.

A 2017-like bullish setup

An MVRV reading above 3.7 alerts about Bitcoin topping out, prompting selloffs. On the other hand, an MVRV reading below 1 implies buying pressure on the prospects of Bitcoin bottoming out.

MVRV has historically assisted Bitcoin traders in spotting selling and buying pressures in the Bitcoin market. For instance, the orange overlays in the chart below represent the correlation between the Bitcoin price and its MVRV output.

Lennard Neo, head of research, explained in a new Stack Funds report published on Nov. 4 that the current MVRV rebound is similar to the one spotted during the 2017 bull run, forming a sequence of higher highs and higher lows (green) the Bitcoin price rises.

Additionally, MVRV also rebounded similarly after the May 2021 price crash, slipping below 1 to indicate the Bitcoin market's undervaluation in that period. The metric recovered well to create higher highs and higher lows, confirming the uptrend for Bitcoin.

"With MVRV currently trading at 2.72, far off from its recent peak of 3.96 in Feb, we are expecting further room for growth as it re-test the 4.0 handle," Neo wrote in a report published Nov. 4, adding:

"Should the MVRV uptrend play out in the near future, Bitcoin's peak is probably a while away."

Bitcoin to $70K?

Neo added that Bitcoin's recent ability to hold $60,000 as its support level indicates its strong willingness to retest $67,000 — or even extend the upside move toward $70,000.

The analyst mentioned two on-chain metrics in addition to MVRV to explain his bullish outlook. That included metrics that track Bitcoin balances across all the crypto exchanges and wallets that hold a large amount of BTC tokens.

In detail, the total Bitcoin held by exchanges worldwide reached 2.311 million BTC, its lowest level in more than three years.

Bitcoin's biggest investors also accelerated their accumulation spree as the Bitcoin price recovered from its May-July 2021 crash.

According to Glassnode's Whale Supply Shock indicator, the so-called whales — addresses that hold 10,000 and 100,000 BTC — increased their Bitcoin buying during the recovery from sub-$30,000 after July.

Dor Shahar, an on-chain analyst at CryptoJungle, called it a sign of "a multi-month accumulation uptrend," predicting fresh record highs for Bitcoin as whales take away more BTC supply out of circulation.

"The ratio between the two groups; whales and other fishes gives a measurement of supply dynamics," he said, adding:

"Thus, [the indicator] can help visualize the supply shortage coins held by whales can cause and its effect on price. Along with that, a more sensitive macro top indication."

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