Chainlink Bearish Signal Archives

On-chain data shows the Chainlink MVRV ratio has shot up as LINK has rallied above $10, a sign that a steep correction may be due for the asset.

Chainlink 30-Day MVRV Ratio Has Crossed The Bearish 20% Mark

As explained by an analyst in a post on X, the last three times the LINK MVRV ratio hit similar levels as now, the cryptocurrency registered a sharp drawdown. The “MVRV ratio” (where MVRV stands for Market Value to Realized Value) is an indicator that measures the ratio between the Chainlink market cap and the realized cap.

The realized cap here refers to a LINK capitalization model that assumes the true value of each coin in circulation isn’t the same as the asset’s spot price, but rather the price at which the coin last moved on the blockchain.

This price at which the coin was last transferred could be imagined to be the value at which its holder bought it, so the realized cap takes into account the prices at which each investor in the market acquired their LINK.

Thus, the realized cap is essentially a measure of the total amount of capital the holders as a whole have invested into Chainlink. Since the MVRV ratio compares the market cap with this metric, it can provide us with info about the profit/loss situation of the investors.

Now, here is a chart that shows the trend in the 7-day moving average (MA) of the ChainlinK MVRV ratio over the past year and a half:

Chainlink MVRV ratio

Note that in the above graph, the MVRV ratio shown isn’t just the ordinary version, but rather the 30-day one. What this means is that this indicator only takes into account the data of coins that were moved within the past month.

From the chart, it’s visible that the Chainlink 30-day MVRV ratio has observed a strong rise recently as the price of the cryptocurrency has enjoyed sharp upward momentum.

The metric has crossed the 21% mark with this increase, suggesting that the investors who bought within the last 30 days are holding 21% more in value than what they put in.

Usually, the more the profits held by the investors, the greater their probability of giving in to the allure of profit-taking. As such, whenever the investors are carrying a high amount of profits, the risk of a correction taking place can become significant.

In the current case, the Chainlink investors are those who only bought within the past 30 days, which means that this cohort is bound to have fickle-minded hands who would easily be tempted to harvest their gains.

As the analyst has marked in the chart, it would appear that the last three times the MVRV ratio crossed above 20% for this group, the LINK price observed a sharp decline.

In the first two cases, this drawdown was 34% each, while in the third and latest one, it was about 14%, which is still quite a notable drop. If this pattern is anything to go by, Chainlink may see another such correction soon.

LINK Price

Chainlink has seen another 9% rise during the last 24 hours as its price has now broken above the $10.1 mark.

Chainlink Price Chart

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.