A quant has broken down how the Bitcoin MVRV MACD oscillator can be used to check signals in the price.
Bitcoin MVRV MACD Oscillator As a price Indicator
As explained by analysts in the CryptoQuant post, this metric can help detect price lows and highs, as well as larger trends. “Bitcoin MVRV” is an indicator that measures the ratio between market cap and realized cap.
Here, the “realized cap” is a capitalization model for BTC that values each coin in circulation at the price it was last moved to, instead of taking the current BTC price equal to the value of all coins, as a normal market cap. exercise.
Since the realized cap is a sort of “true” value model for the coin, the comparison with the market cap (in MVRV) can tell whether the coin is undervalued or overvalued at the moment. If the MVRV is greater than 1, it means that BTC is currently overpriced, while a value below the threshold indicates that it is underpriced.
Now, to use MVRV as a trading tool, the quantity has taken the MACD oscillator from the indicator. A MACD oscillator is simply the difference between the short-term and long-term exponential moving averages (EMA) of these metrics. Here, this EMA is a 50-day and 100-day version.
The chart below shows how Bitcoin MVRV MACD can be used to find tops and bottoms in price:
The metric seems to have approached a value of 0 recently | Source: CryptoQuant
According to quant, whenever MVRV MACD is higher than 0.3, it is a signal that BTC is overbought now. On the other hand, a value less than -0.3 has signaled an underbought situation.
From the chart, it can be seen that the signal does not correspond to the top and bottom of the cycle, but it still correctly shows some local tops and bottoms.
Now, there is another chart where analysts have highlighted how the difference between price and MVRV MACD can signal future trends:
Various divergences between BTC and the MVRV MACD | Source: CryptoQuant
“A divergence occurs when the direction of the technical indicator and the direction of the price trend move in the opposite direction,” explained the analyst. In the chart, it can be seen that the MVRV MACD has risen in negative territory when the price consolidates sideways or downwards, a bullish divergence has been formed for Bitcoin.
In addition, a bearish divergence has been formed when the crypto value has risen, but the indicator has fallen in the zone above zero. Currently, none of these signals have formed in the current bear market so far.
The price of BTC
At the time of writing, Bitcoin is trading around $16,800, up 1% over the past week.
Looks like BTC has stagnated after the rise yesterday | Source: BTCUSD on TradingView
Featured images from André François McKenzie on Unsplash.com, charts from TradingView.com, CryptoQuant.com