2 October 2023
An on-chain signal that preceded crashes of at least 34% for Chainlink in the past has once again formed for the cryptocurrency.
Chainlink 30-Day MVRV Ratio Recently Hit The 20% Mark
As explained by an analyst in a post on X, the last two times the 30-day MVRV ratio broke above the 19% level, the price of LINK registered a sharp decline. The “Market Value to Realized Value (MVRV) ratio” is an indicator that measures the ratio between the Chainlink market cap and the realized cap.
The “realized cap” here refers to the total amount of capital that holders of the cryptocurrency have invested into it. As the MVRV ratio compares the spot valuation (the market cap) with the amount that the investors bought the asset with, its value can provide hints about whether the holders as a whole are in profits or not.
When the metric has a value greater than 1, it means that the market cap is more than the realized cap, and hence, the average investor is in profit right now. The more the holders get into profit, however, the more likely they become to sell, so high values of the MVRV ratio can suggest the asset is becoming overpriced and a correction may be due.
On the other hand, values under the threshold suggest the cryptocurrency may be undervalued currently as the overall market is holding some net unrealized losses.
Now, here is a chart that shows the trend in the 30-day version of the Chainlink MVRV ratio, which looks at the profitability of only the investors who bought within the past month:
In the above graph, the value of the 30-day MVRV ratio is represented as a percentage relative to the break-even level. As is visible, this indicator has observed some sharp uptrend recently as Chainlink has enjoyed its rally.
During this latest rapid growth, the metric had managed to hit a peak of 20%, which means that the market cap had become 20% more than the realized cap of the 30-day investors.
The analyst has pointed out an interesting trend that LINK has followed during the past couple of years. It would appear that whenever the 30-day MVRV ratio has broken above the 19% mark, the cryptocurrency has followed up with a steep drawdown.
This has happened two times in the period of the chart and coincidentally, Chainlink’s decline was about 34.5% in both of these instances (although the time the drawdown was spread out over was different in the two cases).
Since the 30-day MVRV has once again surged above this apparently significant level, it’s possible that LINK may also register a similar drop in the coming days or weeks.
LINK Price
Chainlink has observed some sharp uptrend over the past month, as its price is currently trading just under the $8 level, having gone up almost 34% in the period. If the MVRV ratio is anything to go by, though, this impressive run may finally be coming to an end.