On-chain data from Santiment shows altcoins are currently the most underbought that they have been since early January.
Altcoins Are Currently Underbought According To MVRV
As per data from the on-chain analytics firm Santiment, altcoins are currently in the opportunity zone. The relevant indicator here is the “Market Value to Realized Value” (MVRV) ratio, which measures the ratio between the market cap of any cryptocurrency and its realized cap.
The “realized cap” here is a capitalization model for an asset that aims to provide a “true” value for it. The model works by putting the value of each coin in circulation as the price at which it was last transferred on the chain.
This is different from the usual market cap, which says all coins are worth the same as the current price of the asset. Since the MVRV compares both of these caps, it can provide hints about whether the given cryptocurrency is underpriced or overpriced right now.
When this indicator has a value less than 1, it means the market cap is less than the realized cap currently, and thus the asset in question may be underbought right now.
On the other hand, values of the metric above this threshold imply the price of the coin (the market cap) may be overinflated when compared to its actual value (the realized cap). This could be a sign that the asset may be due for a correction.
Now, to more easily assess the MVRV ratio, what Santiment has done is define an opportunity and a danger zone for the altcoins. As is apparent from their names, these zones can provide buy and sell signals for the assets.
The below chart shows the divergence of the MVRV from these zones (meaning how far the metric is from them) for different timeframes, for various altcoins in the sector:
Looks like most of the assets are currently inside the green zone | Source: Santiment on Twitter
As you can see in the above graph, the opportunity zone occurs above 1, while the danger zone is below -1. This is flipped from how the MVRV usually works, and this reversal was intentional when Santiment defined the divergence.
From the chart, it’s visible that most of the altcoins currently have their MVRV divergence inside the opportunity zone for various timeframes (like 1-day, 7-day, 30-day, and more).
Historically, when the MVRV of any asset has shown this pattern, the price has become more likely to rise as during this condition, the coin can be thought to be underbought.
The reason behind the altcoins becoming underpriced right now is that their prices have taken quite the beating since this month of March kicked off. “Prices can of course still fall further,” notes Santiment. “But this is the most crypto assets have been in opportunity zones since early January.”
At the time of writing, Bitcoin is trading around $21,700, down 7% in the last week.
BTC has declined over the past day | Source: BTCUSD on TradingView
Featured image from Art Rachen on Unsplash.com, charts from TradingView.com, Santiment.net