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Litecoin continued to decline and is now below the $80 level, but based on the metric, the coin could be close to the bottom.
Litecoin is now in the MVRV Opportunity Zone
Several altcoins, including Litecoin, are showing underbought signals following recent price declines, according to data from network analytics firm Santiment. MVRV (Market Value to Realized Value) is a metric that measures the ratio between the market capitalization of a given asset and its realized capitalization.
The realized cap here refers to a kind of “true” value model that says that the actual value of any token in circulation is the price it was last moved on the blockchain, not the current price of the asset.
MVRV compares the market capitalization (i.e. the current price) with this realized capitalization in order to assess whether the cryptocurrency is currently undervalued or overvalued.
When the value of this indicator rises above 1, it means that this coin may be overvalued. On the other hand, a fall below this line indicates that the asset is underpurchased.
Santiment has identified its “opportunity” and “danger” zones for MVRV on both sides of the 1 mark, after entering which the asset has a higher probability of bottoming/highing.
And now here is a chart showing the deviation of the MVRV indicator from these zones for various cryptocurrencies in the sector:
It looks like many of these coins are currently in the green zone | Source: Sentiment on Twitter.
The way Santiment defined divergence (i.e. distance from the zones) made it so that a buy signal occurs when an asset’s MVRV divergence crosses 1 and a sell signal occurs below -1 (this opposite orientation, which is usually the case in the MVRV ratio ; this flip is done with the intention of making the metric more intuitive).
The chart shows that most of the assets on the market are currently in the positive area, which suggests that they are close to underbought. Some of them, such as Litecoin, immediately entered the opportunity zone, which means that this could be a good time to buy an asset.
Litecoin entered this zone as its value fell below the $80 mark for the first time since March and put the average investor in a loss.
Historically, the more losses investors had, the closer the price of the cryptocurrency came to the bottom. It is for this reason that the aforementioned zone of opportunity provided ideal points for buying an asset.
In the case of Litecoin, a bullish scenario in the form of its halving, events where the reward for its mining blocks will be halved, is also around the corner, so there is an increased possibility that the price may bottom and rebound soon. However, it is not clear if the bottom has already been reached or if a drawdown is yet to come.
At the time of writing, Litecoin is trading around $79, down 1% over the past week.
LTC has recently declined | Source: LTCUSD on TradingView