An explanation may be that a shift in how the world sees bitcoin may be happening. As can be seen in Figure 7, the trends for the percentage of the circulating bitcoin supply that is not on exchanges (blue) or that is labelled illiquid (green) have dramatically changed since roughly March 12, 2020.
Figure 7: The illiquid and non-exchange supply as a percentage of the circulating bitcoin supply ( source )
On that day, global financial market sell offs triggered a cascade of long liquidations that took the bitcoin price down over 50% in two days and cleared the market of all excess leverage. Since then, publicly traded companies and now even a country have adopted bitcoin, while central banks have turned on their money printers heavily in their attempt to combat the economic downturn, creating a gigantic asset bubble instead.
In a time where bitcoin is making strides to replace gold as the go-to hard money shelter against monetary inflation, an increased adoption of bitcoin as an asset to transfer value over time means that coins become less likely to move on-chain. That trend may be exacerbated by Lightning Network adoption, which reduces the need to transact on-chain even further. As a result, unspent transactions may take more time to realize value via an on-chain footprint as is quantified in the MVRV metric. Simultaneously, their likelihood of being included in Glassnode’s illiquid or LTH supply increases.
If these trends continue, it is possible that the MVRV baseline will start lagging and that the presented MVIV and MVLV metrics may provide a more reliable estimate for the bitcoin floor price. It is therefore nice that we now have multiple similar options to fall back on that utilize this valuation method from different angles. For the time being, these metrics are very similar — especially when the bitcoin market value deviates further from the respective baselines (Figure 8).
Figure 8: Bitcoin MVRV, MVLV, MVIV and BPT metric comparison
The similarity between the floor models that are depicted in Figure 7 and the resulting metrics of Figure 8 can also be seen as a form of confluence. The MVRV, MVLV and MVIV all incorporate the lifespan of the underlying coins. These metrics therefore reflect investor time preference and hold valuable information about the relative bitcoin valuation in comparison to the price floor that is set by HODLers.
A limitation of the presented MVLV and MVIV Bands metrics that we need to be cognizant of is that proprietary algorithms were used by Glassnode to construct the illiquid and long-term holder supply metrics. It is likely that Glassnode will keep improving upon those algorithms to optimally service their clients, which would mean that both future and historic values may be subject to change over time. Charts representing MVIV and MVLV (Bands) metrics therefore should be seen as a snapshot in time that uses the most up-to-date method to quantify the supply that is in the hands of entities that are unlikely to spend it, and not to be compared to prior visualizations of the same metric.
At the time of writing there is no web-based version of the metric available yet (Glassnode’s Workbench currently does not support an expanding standard deviation), but the R code for the metrics and charts presented here is available on GitHub .
Special thanks go out to @Anoi30604540 @_Checkmatey_ and @WClementeIII for providing feedback on the draft of this article.
Disclaimer: This article was written for educational and informational purposes only and should not be taken as investment advice.
This is a guest post by Dilution-proof. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
