MVRV Ratio

The MVRV ratio captures the relationship between the perceived market valuation and the actual realized cost basis of the asset. Building upon prior observations that Market Capitalization frequently overstates the true value of Bitcoin, and that Realized Value provides a more accurate measure of this valuation, we can leverage their ratio to determine whether the asset is currently overvalued or undervalued by the market.

Following Mahmudov and Puell [6], the MVRV is calculated as the ratio of Market Capitalization to Realized Value:MVRV = Market Capitalization / Realized Value

Realized capitalization (or realized value) differs from market capitalization in its valuation methodology: instead of pricing all circulating coins equally at the current market price, realized capitalization assigns each unit its value at the time it was last moved. This provides an approximation of the amount of capital that has historically entered the network.
Following Stylianou and Carter [5], the realized capitalization is calculated as the sum of all UTXOs multiplied by the bitcoin price at the time of creation:
Realized Capitalization = ∑_∀UTXOs (UTXO amount × price at creation)
The UTXO amount is the quantity of bitcoin it holds, while the creation price refers to value of bitcoin at the time the UTXO was created.