23 October 2023
On-chain data shows the Chainlink MVRV ratio has shot up as LINK has rallied above $10, a sign that a steep correction may be due for the asset.
Chainlink 30-Day MVRV Ratio Has Crossed The Bearish 20% Mark
As explained by an analyst in a post on X, the last three times the LINK MVRV ratio hit similar levels as now, the cryptocurrency registered a sharp drawdown. The “MVRV ratio” (where MVRV stands for Market Value to Realized Value) is an indicator that measures the ratio between the Chainlink market cap and the realized cap.
The realized cap here refers to a LINK capitalization model that assumes the true value of each coin in circulation isn’t the same as the asset’s spot price, but rather the price at which the coin last moved on the blockchain.
This price at which the coin was last transferred could be imagined to be the value at which its holder bought it, so the realized cap takes into account the prices at which each investor in the market acquired their LINK.
Thus, the realized cap is essentially a measure of the total amount of capital the holders as a whole have invested into Chainlink. Since the MVRV ratio compares the market cap with this metric, it can provide us with info about the profit/loss situation of the investors.
Now, here is a chart that shows the trend in the 7-day moving average (MA) of the ChainlinK MVRV ratio over the past year and a half:
Note that in the above graph, the MVRV ratio shown isn’t just the ordinary version, but rather the 30-day one. What this means is that this indicator only takes into account the data of coins that were moved within the past month.
From the chart, it’s visible that the Chainlink 30-day MVRV ratio has observed a strong rise recently as the price of the cryptocurrency has enjoyed sharp upward momentum.
The metric has crossed the 21% mark with this increase, suggesting that the investors who bought within the last 30 days are holding 21% more in value than what they put in.
Usually, the more the profits held by the investors, the greater their probability of giving in to the allure of profit-taking. As such, whenever the investors are carrying a high amount of profits, the risk of a correction taking place can become significant.
In the current case, the Chainlink investors are those who only bought within the past 30 days, which means that this cohort is bound to have fickle-minded hands who would easily be tempted to harvest their gains.
As the analyst has marked in the chart, it would appear that the last three times the MVRV ratio crossed above 20% for this group, the LINK price observed a sharp decline.
In the first two cases, this drawdown was 34% each, while in the third and latest one, it was about 14%, which is still quite a notable drop. If this pattern is anything to go by, Chainlink may see another such correction soon.
LINK Price
Chainlink has seen another 9% rise during the last 24 hours as its price has now broken above the $10.1 mark.