MVRV, or Market-Value-to-Realized-Value Ratio, is the ratio of the nominal market value of an asset to its actual market value . It can be used to judge cyclical changes in the crypto market.
NUPL, or Net Unrealized Profit/Loss, is an indicator of net profit/net loss in the crypto market. It can be used to evaluate the profit/loss status of the current market.
Both MVRV and NUPL are calculated based on the nominal market value and real market value of the asset. The respective formulas are as follows:
Where:
Realized Cap is valued based on the price when the asset was last active, rather than the current market price. For example, if a Bitcoin last moved in 2013, its price would be the price of Bitcoin in 2013. This calculation method can reduce the impact of an asset being lost or out of circulation for a long time and reflect the actual cost value of the asset.
By comparing the difference between nominal market capitalization and actual market capitalization, MVRV and NUPL can be used to understand when asset prices are above or below cost price, thereby assessing the profitability of the market. In addition, extreme differences between nominal and actual market capitalization can be used to identify market tops and bottoms and reflect large cyclical changes in the market.
The MVRV ratio is usually used to analyze market profitability. situation, thereby providing signals for market cycle trends. Its value corresponds to the downward and upward trends of the market respectively according to the high and low values.
High MVRV: Bearish Signal
High MVRV means the asset's nominal market value is higher than its actual market value. The vast majority of asset holders are in profit. In this case, people often choose to sell their assets for immediate profit. As a result, the number of sellers in the market will increase dramatically, leading to oversupply and thus increasing the probability of subsequent price declines.
Historically, an MVRV value of > 3.5 is an extreme value. It indicates a potential market cycle top and is a bearish signal. For example, on November 10, 2021, Bitcoin price reached an ATH price of $67,000 with an MVRV ratio of 2.72. After that, the price of Bitcoin fell rapidly and the market gradually entered a cold winter.
Low MVRV: Bullish Signal
A low MVRV means that the nominal market value of an asset is lower than its actual market value. The vast majority of asset holders are in the red. In this case, people generally choose to hold on to the asset rather than sell it at a discount. Therefore, the number of sellers in the market will decrease sharply, causing supply to exceed demand, thereby increasing the probability of subsequent price increases.
Historically, an MVRV value of < 1.0 is a bear market bottom signal, as well as a bullish signal. For example, on November 10, 2022, the price of Bitcoin fell to its lowest point since ATH, around $16,000, due to the FTX bankruptcy, and the MVRV ratio was as low as 0.84. After MVRV hit bottom, its price gradually climbed back up to where it is now at $26,000.
NUPL is usually used To determine whether the current market is in a profit/loss state. It assesses market cycles and provides investors with buy/sell signals.
NUPL > 0 means the market is in net profit; < 0 means the market is in net loss. Generally speaking, the further the NUPL value is from 0, the closer the market is to tops and bottoms.
Historically, a NUPL above 0.75 indicates a market top, while a NUPL below -0.25 indicates a market bottom. When the NUPL value is positive, the market sentiment is positive and optimism deepens as the value increases; when the NUPL value is negative, the market is in a pessimistic mood.