Bitcoin Price Drops 4% to $105,900, MVRV Ratio Approaches +1 SD Line

On-chain data indicates that the Bitcoin Market Value to Realized Value (MVRV) Ratio is rising, but it has not yet reached extreme levels. The MVRV Ratio is a key indicator that compares the value held by investors to their initial investment. When this value is greater than 1, it signifies that investors are in a state of net profit. Conversely, a value below 1 suggests that the overall network is underwater.

According to the latest weekly report from an on-chain analytics firm, the MVRV Ratio is used to define pricing bands that correspond to extreme deviations from the average investor profitability. These bands help identify periods where investor profits or losses are unusually high. The report includes a chart showing the trend in these pricing bands for Bitcoin over the past few years. Currently, the Bitcoin price has been trading above the mean level of this model and has recently broken above the +0.5 standard deviations (SD) line, which is around $100,200.

The next significant level for Bitcoin is the +1 SD line, located at $119,400. Historically, when Bitcoin has surpassed this line, it has often marked a top for its price. This pattern occurs because as investor profits grow, holders become more tempted to take their profits, leading to increased selling pressure and a potential long-term top. In the current cycle, Bitcoin has breached the +1 SD level twice, forming the March 2024 and December 2024 peaks. However, the current rally is still below this level, indicating that the market is relatively heated but has room for further expansion before reaching an extreme level of unrealized profit above +1σ.

Bitcoin has experienced a pullback in the past day, with its price dropping to $105,900. Despite this recent decline, the overall trend suggests that while the market is hot, it is not yet in a danger zone. Investors should monitor the MVRV Ratio closely as it approaches the +1 SD line, as this could signal a potential top in the current rally.