These pricing models are based off a set of MVRV values which typically describe the extremes of market cycles. These bands allow us to estimate price levels where the market would reach an extreme unrealized profit (high values), or unrealized loss (low values). Reaching these prices may increase the likelihood that investor behavior is triggered (like profit taking, or capitulation), which ultimately is what establishes the cycle top/bottom we are looking for.
We can quantify how likely it is for these MVRV levels to be breached, by modelling the number of trading days above/below these levels:
🔵 Extreme Lows: MVRV has been Below 0.8 for around 5% of trading days.
🟢 Getting Low: MVRV has been Below 1.0 for around 15% of trading days.
🟠Getting High: MVRV has been Above 2.4 for around 20% of trading days.
🔴 Extremely High: MVRV has been Above 2.4 for around 6% of trading days.
For full details on the derivation of these models, please refer to our report Mastering MVRV.