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Picture: Ovex
Picture: Ovex

Earlier this year, bitcoin tapped stunning all-time highs after milestone Spot bitcoin exchange-traded funds (ETFs) approvals in the US. The barrage of institutional demand that followed pushed bitcoin to a peak of $73,844 (about R1.3m) in late April.

Fast-forward to today and bitcoin has retraced to its consolidation level from April, experiencing a 17% decline over the past four weeks. This marks the most significant correction of 2024 thus far. Despite this downturn, investors are capitalising on the opportunity, viewing the dip as a strategic entry point to acquire bitcoin at a more favourable price. 

This correction is primarily driven by significant sell pressure from two major sources: the German government and the defunct exchange Mt. Gox. Since June, the German government has offloaded more than 10K BTC of illicitly acquired bitcoin. Additionally, the impending Mt. Gox repayments, totalling 140K BTC, have contributed to the current supply overhang.

Despite this, institutional players remain optimistic. After the correction, Spot ETF bitcoin funds poured $438m into US ETFs within just two days. This opportunistic behaviour suggests smart money still believes in bitcoin’s longer-term potential.

Trade bitcoin and other cryptocurrencies like the pros on the OVEX mobile app available via Google Play or the Apple App Store.

Reactions of this nature are typical during periods of market stagnation and low volatility, when apathy tends to creep in, resulting in widespread indecision and a market that fails to establish a robust trend in either direction. Cue a decisive event and holders panic.

Market value vs realised value (MRVR) ratio = market cap/realised cap

Despite this worrying stagnation, most investors are actually doing (more than) OK, with the average coin in circulation holding a 2x profit multiple.

This multiple is determined through a simple, yet highly effective metric widely used in the crypto-sphere called the MRVR ratio.

Put simply: the MRVR helps identify extreme deviations between market value and realised value, and is therefore indicative of periods of investor unrealised profit and loss.

The MRVR ratio takes into account two numbers: market cap and realised cap. Realised cap considers the price each bitcoin in circulation last moved at, thereby painting a clearer picture of overall market value compared to just the current price (which market cap follows).

Trade bitcoin and other cryptocurrencies like the pros on the OVEX mobile app available via Google Play or the Apple App Store.

The resulting ratio is useful for getting a sense of when the exchange-traded price is below fair value, and is also quite useful for ascertaining market tops and bottoms. 

MRVR trading < 1 has historically signalled bear-market bottoms and smart-money accumulation are in play. Extreme values (historically > 3.5) are bearish signals, indicative of potential cycle tops.

The ratio presently sits at a healthy 1.8, which is suggestive of a market that is neither too hot nor too cold. 

Realised price

To calculate bitcoin’s realised price, you divide its realised cap by the number of coins in circulation. This metric approximates the market’s cost basis, indicating what the market paid for their coins and whether they are in profit or loss.

When analysing the realised price of short-term holders, it becomes evident they are bearing the majority of paper losses. Their break-even level, or cost basis, is $64,000. Failure to surpass this threshold may prompt a wave of selling, intensifying bearish momentum and potentially dragging bitcoin into a more pronounced downturn.

It is useful to break down the cost basis of short-term holders even further. Coins aged 1d-1w, 1w-1m and 1m-3m are all holding unrealised losses on average. This shows three different short-term holder cohorts face a consolidation range that has been largely unproductive for them. The broader investor base, however, remains relatively insulated from severe losses, as evidenced by the healthy MRVR score. This underlines the resilience of the current market and further highlights the dichotomy between short-term speculative traders and long-term holders.

Where to next?

Bitcoin no doubt sits at a critical level. But what bought us here in the first place, and where do we go from here? The broader global economy is at a crossroads as more central banks begin to ease monetary policy in an effort to avoid recession.

The US is facing high levels of debt as well as inflation, with economists worried about how the Federal Reserve can navigate a soft landing.

Bitcoin’s role as a hedge against fiscal instability and its potential for significant appreciation in response to favourable monetary policies position it as a compelling asset. Many analysts as a result see the current indecision in the market as an opportunity to buy.

The key is to follow the smart money — corporations are increasingly addingbitcoin to their balance sheets seeing the imminent supply overhang as a discount buying opportunity. These institutions may be adding bitcoin to their balance sheets amid uncertainties about future inflation and monetary policy. 

Trade bitcoin and other cryptocurrencies like the pros on the OVEX mobile app available via Google Play or the Apple App Store.

This article was sponsored by OVEX.

Dealing or trading in cryptocurrency carries risk. By dealing or trading in cryptocurrency, you assume the inherent or associated risks arising from the volatility of cryptocurrency and its limited use in the mainstream marketplace, including loss of capital. Trading in cryptocurrency may not be suitable for all persons. Past returns or performance of any cryptocurrency are not a reliable indicator of future returns.

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