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On-chain data shows that MVRV Litecoin has been at a relatively high level recently, which could be bearish for the cryptocurrency.
MVRV readings for both 30-day and 365-day Litecoin are currently high
According to data from network analytics firm Santiment, LTC traders are currently afloat. The “MVRV Ratio” is a metric that measures the ratio between the two main capitalization models for Litecoin: market capitalization and realized capitalization.
The market capitalization here is a regular capitalization that calculates the total value of an asset by simply assuming the value of each coin in circulation is the same as the current spot price.
The realized cap, however, is a more ad hoc model as it assumes that the actual value of any coin in circulation is the price at which it was last transacted on the blockchain.
Since this model aims to estimate a sort of “true value” of Litecoin, comparing it to the market cap (i.e. spot price) in MVRV can tell us if the asset’s price is fair or not at the moment.
When MVRV is greater than 1, it means that the market capitalization is currently higher than the realized capitalization. At such times, the average investor is in a position of profit, so the incentive to sell for him increases. Thus, the cryptocurrency can be considered overpriced under these conditions.
On the other hand, a value below this threshold means that the average owner is at a loss, and therefore the asset may be currently undervalued.
Now here is a chart that shows the trend of the 30-day and 365-day moving averages (MA) of the Litecoin MVRV ratio over the past few months:
Metrics seem to have been high in recent days | Source: Sentiment
As shown in the chart above, Litecoin MVRV 30-day and 365-day MA have risen above the baseline with the recent price spike above the $90 level. This could mean that the cryptocurrency could have become a bit overpriced.
Prior to this spike, when LTC was making lows, the 30-day version of the indicator temporarily entered the undervalued area. Coinciding with these metric values, the price formed its bottom and eventually rose towards the current surge.
Back in April, MA MVRV showed the same behavior as they do now as they reached relatively high values as the asset surged above the $100 mark. The rally soon stalled in these overvalued conditions and the asset fell sharply.
If a similar pattern can be traced with the current overestimated values of the indicator, then Litecoin may continue to correct in the near future.
In the long term, however, the outlook for the asset may remain optimistic as the long-awaited halving event, where the cryptocurrency block reward is permanently halved, will take place in August, which is just around the corner.
At the time of writing, Litecoin is trading around $91, up 1% over the past week.
LTC has experienced some uptick over the past few days | Source: LTCUSD on TradingView