When the MVRV Ratio Flashes Red Flags

The MVRV ratio—this term sounds complicated, but the core logic is actually very simple. It is the market value divided by the realized value; in other words, it compares the current market valuation of an asset with the investors' actual cost basis.

Imagine this: if you bought something for 100 dollars and the current market price is 500 dollars, that multiple is 5x. The crypto market operates on the same logic.

**Where do the danger signals appear?** When the MVRV ratio spikes to 3.5 or even approaches 4, it's time to be alert. What does this indicate? It means the price has far outpaced the real funds supporting it. Sounds good, but history repeatedly shows that such situations often precede a correction or even a decline.

What do these extreme moments in the market cycle signify? They often mark the peak of greed and the gradual disappearance of rationality. The distribution of holdings becomes severely unbalanced, and risks start to accumulate. Smart traders will become more cautious at this point, considering risk management and adjusting their positions. After all, the further the price is from the fundamentals, the stronger the potential for a reversion.