When I talk about something simple with my kids, I use the phrase: “It’s not rocket science.”
They’ve recently become interested in learning about trading cryptocurrency. Because of its high volatility, sometimes it feels like trading crypto is rocket science. Prices bounce all over the place … sometimes for no reason at all.
In April, the price of bitcoin reached $63,446 per coin. Three months later, the price dropped to $29,767 — a 53% drop in a short amount of time. Two months after that, the price rebounded to $52,641 — up 77% from that July low.
In my research, I found a value indicator that can help crypto traders find the best times to buy and sell coins.
In this episode of The Bull & The Bear, I’ll tell you about that indicator and what it says now.
Cryptocurrency Value Metric Tells the Story
With stocks, there are metrics that tell investors when an asset is either overvalued or undervalued. The “value” metric is one of the six we use in our Green Zone Ratings system.
Value used in cryptocurrency trading can indicate when it’s a good time to buy or sell.
Value Metric Trend Shows Buy and Sell Points
There is a ratio used to indicate when a cryptocurrency is either overvalued or undervalued. This is done by taking the market cap of bitcoin and dividing it by its realized capitalization.
This gives us the Market Value/Relative Value ratio (red line in the chart above), or MVRV.
The MVRV ratio has been solid in telling cryptocurrency investors when to buy and when to get out.
I’ll tell you all about this ratio and how it’s used. I’ll also tell you what the ratio says about some of the most popular cryptocurrencies now.
The Bull & The Bear
Led by Adam O’Dell and a team of finance journalists, traders and experts, Money & Markets gives you the information you need to protect your nest egg, grow your wealth and safeguard your financial well-being.
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Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.