Key Takeaways
When the market price diverges considerably from the realized one, it often parks local peaks since the upcoming profit-taking pushes the BTC price down and the realized price up.
Short-Term Holders (STHs) usually have a closer average realized price to the actual BTC price. Historically, divergences between the BTC and STH realized prices have signaled market cycle tops.
With that in mind, we will look at Bitcoin’s realized price and indicators derived from it and then compare them to the STH realized price to see how overbought the current BTC rally is.
The Realized price shows the aggregate cost basis, noting when Bitcoin last moved on-chain. The MVRV ratio is an indicator derived partially from the realized price, measuring the ratio between the spot and realized prices.
A MVRV value above 1 shows unrealized profits on average, while those below 1 show unrealized losses. The chart below represents them by yellow and red, respectively.
The current MVRV reading is 1.32, meaning the average BTC holds 32% unrealized profit. The indicator was last at similar levels during the then April 2024 previous all-time high.
As Bitcoin matured, the peak values of MVRV decayed, a sign of maturity as the asset grew in size.
More specifically, all previous market cycles have had a declining value, as noted by the descending resistance trend line connecting them.
Interestingly, the MVRV ratio has reached this trend line, suggesting that the top of the BTC cycle is close. The BTC price is roughly 2.5 times the realized price.
Previously, the highs were reached about 3x the realized price, which would put BTC at just above $120,000.
The STH realized price is the realized price from the cohort that purchased Bitcoin in the past six months. These are often more speculative buys and have a higher entry cost than long-term holders. This realized price is currently at $89,000.
The STH on-chain cost basis bands uses standard deviations to create upper and lower (red & yellow) bands that have historically measured the Bitcoin cycle tops and bottoms.
In the current cycle, the BTC price has not moved above the upper band, which is currently at $127,140.
However, the November 2024 breakout (blue circle) took the price well above the short-term holder cost basis. So, the BTC price is higher than the STH realized price but lower than the upper band.
Going by previous cycles, it is likely that BTC will reach a cycle high somewhere above the upper band.
On the other hand, a decline below the STH realized price will indicate the current portion of the increase is over.
When this happened in the previous cycle (black circle), the BTC price fell below its low-band, confirming that the bear market has begun.
Even though Bitcoin started a relief rally afterward, the trend had turned bearish after the price lost the STH cost-basis support.
The MVRV ratio indicator is giving signs of a top when taking into account the diminishing returns in each successive cycle.
However, the difference between the market and realized price suggests there is more room to grow until Bitcoin crosses $120,000. The same conclusion is reached when looking at extreme bands of the STH realized price.