Unit 2 · Level 3 · On-chain valuation
MVRV: the profit gauge
Divide market cap by realized cap and you get MVRV, short for Market Value to Realized Value. At MVRV 2, the average coin is worth double what its holder paid. High MVRV means holders sit on fat unrealized profits (and fat temptation to sell); MVRV below 1 means the average holder is underwater. Historically, extremes above roughly 3.5 lined up with bitcoin cycle tops, and dips below 1 with bear-market depths.
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What you get asked
Bitcoin's market cap is €800B and its realized cap is €400B. What is MVRV?
MVRV = market cap ÷ realized cap = 800 ÷ 400 = 2. On average, holders' coins are worth twice what they paid.
MVRV drops below 1. What does that say about the average holder?
Below 1, market value sits under aggregate cost basis. Historically these episodes (late 2018, mid-2022) were maximum-pain zones where capitulation clustered.
Match each MVRV zone to its classic interpretation
The logic: the more profit holders sit on, the more selling temptation exists; the deeper the loss, the closer to seller exhaustion. Zones, not tripwires.
High MVRV signals lots of ___ profit: gains that exist on paper and tempt holders to sell.
MVRV measures temptation, not action. Profit becomes sell pressure only when holders act on it, which is why it marks zones rather than dates.
What's the honest caveat about using historical MVRV extremes as signals?
Bitcoin has had maybe four full cycles, a tiny sample. 2021's MVRV top was lower than 2017's. Respect the zones, but never bet the farm on a line drawn through three points. 🐜
The rest of this unit
The blockchain remembers what everyone paid. Turn that memory into valuation gauges.