Reading pen farming | Falling in love with on-chain data 01: MVRV

After reading @Uncle Xin [ 3𝓐𝓾Learning 𝓦𝓱𝓪𝓽#1] on-chain data - 𝓝𝓤𝓟𝓛, I also did some popular science research myself. This article will be elaborated from the beginning, trying to "speak human words" as much as possible to make it easy for everyone to understand.

To understand the logic of the NUPL indicator, we have to start with MVRV....

■ Details from the beginning: MV, RV

MVRV was first proposed in October 2018 by two on-chain data analysts, Murad Mahmudov & David Puell , and was initially used to judge the Bitcoin market.

Among them, MV refers to Market Value , which is translated as "market value" in Chinese, and is the total number of bitcoins in circulation x market price . It can be imagined as the market value of the traditional financial market, that is, the stock price x the number of outstanding shares.

Tips: The MV reflects "current" market sentiment fluctuations.

RV refers to Realized Value , which is translated as "realized value" in Chinese. Everyone knows that the blockchain is a public ledger, and the cash flow of Bitcoin is clear and transparent. When each bitcoin is moved for the last time, the last time it is sent from one wallet to another, a price will be generated. All these prices are added up to take the average, and then the average price x the total number of bitcoins in circulation is RV.

Tips: RV is seen as a “more real” measure of value for Bitcoin.

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Divide MV and RV, this number is called MVRV Ratio ; if it is subtracted, it is the source of NUPL ; if it is more refined, the concept of statistical "standardization" will be used to calculate MVRV Z-score … The essence behind these indicators and the phenomena they want to reflect are similar.

■ Where to inquire?

• Woobull Charts (preset MVRV Ratio, can be switched to MVRV Z-score) https://charts.woobull.com/bitcoin-mvrv-ratio/
• BITCOINITION (MVRV Z-score)
  https://bitcoinition.com/charts/mvrv-z-score/

■ Operational Policies

The MVRV Ratio is used as an illustration.

A (seemingly) good practice is:

 Buy Bitcoin when the MVRV Ratio value is less than 1.
Sell coins when the MVRV Ratio value is greater than 3.

According to a report published by research institute Messari (see page 13), historical data show that the time for MVRV Ratio above 3 is gradually decreasing .

In 2011, the MVRV Ratio stayed above 3 for 4 months.
In 2013, it stayed there for 10 weeks.
In 2017, it stayed for 3 weeks.
In 2021, it will only stay for 3 days.

Does this mean that the price of Bitcoin, the asset, is reacting faster and faster to the "market consensus on 'good times'"? Bitcoin has entered the field of vision of more and more people (including institutional investors)?

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