BTC's MVRV Long/Short Difference waves a bullish flag

Bitcoin's MVRV Long/Short Difference passes 0% for the 4th time ever (Source: Sandata)

One of our custom-built indicators availabe on Sandata, Bitcoin’s Long/Short MVRV difference has crossed above 0% for just the 4th time in the coin’s history. The last 3 times it happened, the move has demarcated the end of a bear cycle for the world’s biggest cryptocurrency.

So what does this latest move mean - and what exactly is the MVRV Long/Short Difference?

About the MVRV ratio

Originally developed by Murad Mahmudov and David Puell, the idea behind the MVRV ratio is to measure how much each BTC holder paid for their coins initially, and compare that ‘acquisition cost’ to the current price of BTC. That way, we can calculate the average ROI of all Bitcoin holders.

In short, if the MVRV ratio is above 1.0, then - on average - all BTC holders are currently sitting ‘in profit’. An MVRV of 2.5, for example, means that all Bitcoin holders are - on average - presently 250% on their initial investment.

Bitcoin's MVRV ratio, last 9 years (Source: Sandata)

If the MVRV is below 1.0, then - on average - all holders would realize a loss if they sold. The bigger the ratio, the more sell pressure there will be on the BTC price. The lower the ratio, the more ‘undervalued’ the coin, and an arguably better opportunity to accumulate.

The MVRV Long/Short Difference

This is the fundamental idea behind the MVRV ratio. At Santiment, we expanded on this concept last year by introducing time-bound MVRV, which takes into account only those coins that have moved within the last X amount of days, allowing us to calculate the average ROI of different holder demographics.

For example, we have successfully computed the MVRV ratio of only the Bitcoin that moved in the last 365 days (‘longterm’ HODLers), or the ones that moved just within the last 60 days (short-term HODLers).

Bitcoin's 365-day and 60-day MVRV, last 9 years (Source: Sandata)

Here’s where we found something very interesting - during a bull market, the 365-day MVRV has historically been bigger than the 60-day MVRV, with the exact opposite phenomenon during a bear market. According to Valentin Mihov, Santiment’s CTO:

“The explanation could be that the short term traders are usually profiting when the market goes down and sideways, while during a bull run the long term holders are the ones that will have the final call - ultimately when the long term holders start to sell, that will be the end of the bull run.”

We plotted the difference between these two MVRV ratios on a single chart, and named it the MVRV Long/Short Difference. The premise was that this indicator will bottom at the bottom of the bear market and peak at the top of the bull run.

So far, the MVRV Long/Short Difference has proved its worth both historically and in real time. Last time we wrote about it - back in May 2019 - the line had crossed above 0% for only the third time in Bitcoin’s history. The previous two times were in June 2012 and October 2015 - on both occasions, the move above 0 demarcated the beginning of another bull cycle for Bitcoin:

Bitcoin's MVRV Long/Short Difference, up until July 2019 (Source: Sandata)

When we wrote about the indicator’s third move above 0 back in May 2019, Bitcoin was hovering around $5900. Within a week, the top cryptocurrency breached the ~$8000 level. In 45 days, it was retesting $13000. Since then, the indicator has slowly been trending downwards, falling below the 0% mark in December of 2019 and continuing to decline to start the year.

But not for long. 8 months later, we are here again: Bitcoin’s MVRV Long/Short Difference has crossed above zero for only the fourth time in its 10-year history. After bottoming out at 7.6% mid January, the indicator has crossed the 0% mark yesterday, and has already climbed to 1.38% at the time of writing:

Bitcoin's MVRV Long/Short Difference, all time (Source: Sandata)
Bitcoin's MVRV Long/Short Difference, last 6 months (Source: Sandata)

It’s worth noting that the indicator has also been ‘flattening’ over time, peaking and bottoming out earlier with each new bull cycle. From that perspective, it’s not too surprising that this last dip below 0 lasted relatively short and bottomed at just above 7%, as the market - and Bitcoin itself - continue to mature.

So what does this mean? Is another BTC bull cycle on the horizon? Only time will tell - but it’s worth noting that the MVRV L/S Difference is not alone - there has been a number of seemingly bullish signals for Bitcoin recently, including our NVT ratio, which is flashing green for the first time in the last 8 months.

We covered both metrics and more BTC fundamentals earlier today in our weekly community call - if you’re curious about the current market conditions, I strongly suggest checking it out.

P.S. You can find the MVRV Long/Short Difference only on Sandata, our main hub for advanced crypto analytics, with over 100 custom on-chain, social and development indicators developed by the Santiment team.

Watch this space.

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