A quant has shown how the Bitcoin MVRVMACD oscillator can be used to detect price signals.
Bitcoin MVRV MACD Oscillator As Price indicator
An analyst from CryptoQuant explained this to me postThis metric can detect the lows and highs of the price as well as greater trends. The “Bitcoin MVRV” is an indicator that measures the ratio between the market cap and the realized cap.
Here, the “realized cap” is a capitalization model for BTC that values each coin in circulation at the price at which it was last moved, rather than taking the same current BTC price as the value of all the coins, as the normal market cap does.
Since the realized cap is sort of a “true” value model for the coin, its comparison with the market cap (in the MVRV) can tell us whether the coin is undervalued or overvalued at the moment. When the MVRV is greater than 1, it means BTC is overpriced right now, while having values below the threshold suggests it’s underpriced.
To use MVRV for trading, the quant took the MACD oscillator. The MACD oscillator simply measures the difference between the short and long-term exponential moving Averages (EMAs) of the metric. These EMAs can be referred to as the 50-day or 100-day versions.
Below is a chart that shows how the Bitcoin MACD MACD can be used to find tops and bottoms of the price.
The metric appears to have recently approached a value close to 0 | Source: CryptoQuant
According to the quant, a higher MVRV MACD value than 0.3 indicates that BTC is currently overbought. Conversely, values lower than -0.3 signaled that there are underbought circumstances.
From the chart, it’s apparent that while these signals haven’t coincided with the cycle tops and bottoms, they have still correctly indicated some local tops and bottoms.
Here is another graph in which the analyst highlights how divergences between price and MVRV MACD could signal future trends.
Source:| Source: CryptoQuant
“A divergence occurs when the direction of a technical indicator and the direction of the price trend are moving in opposite directions,” explains the analyst. In the graph, it’s visible that whenever the MVRV MACD has moved up inside the negative region while the price consolidates sideways or declines, a bullish divergence has formed for Bitcoin.
A bearish divergence also formed when crypto’s value has been increasing but the indicator has been falling in the area above zero. These signals are not yet present in the bear market.
Bitcoin traded at $16,800 at the time of writing. That’s up 1% over the week.
It looks like BTC has stagnated following yesterday's rise | Source: BTCUSD on TradingView
Featured image from André François McKenzie on Unsplash.com, charts from TradingView.com, CryptoQuant.com