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On-chain data shows that the Chainlink MVRV ratio has risen as LINK has risen above $10, a sign that the asset may be in need of a steep correction.
The Chainlink 30-day MVRV ratio has crossed the bearish 20% mark
As explained by an analyst in a after on The “MVRV ratio” (where MVRV stands for Market Value to Realized Value) is an indicator that measures the ratio between Chainlink market capitalization and realized capitalization.
The realized cap here refers to a LINK capitalization model that assumes that the actual value of each coin in circulation is not the same as the spot price of the asset, but rather the price at which the coin last moved on the blockchain.
One can imagine that this price at which the coin was last transferred is the value at which the holder purchased it, so the realized limit takes into account the prices at which each investor in the market acquired their LINK.
So the realized cap is essentially a measure of the total amount of capital that the holders as a whole have invested in Chainlink. Because the MVRV ratio compares market capitalization to this measure, it can provide us with information about the profit/loss situation of investors.
Here is a chart showing the trend in the 7-day moving average (MA) of the ChainlinK MVRV ratio over the past year and a half:
Looks like the value of the metric has shot up recently | Source: Santiment on X
Note that in the chart above, the MVRV ratio shown is not just the regular version, but rather the 30-day version. What this means is that this indicator only takes into account the data of coins that have moved in the last month.
The chart shows that the Chainlink 30-day MVRV ratio has seen a sharp increase recently as the cryptocurrency’s price has seen sharp upward momentum.
The measure has surpassed the 21% mark with this increase, suggesting that investors who bought in the last 30 days are holding 21% more value than what they put in.
Typically, the more profits investors hold, the more likely they are to give in to the lure of taking profits. When investors make large profits, the risk of a correction can become significant.
In the current case, Chainlink investors are those who have only bought in the last 30 days, meaning this cohort will undoubtedly have fickle hands that would be easily tempted to harvest their profits.
As the analyst pointed out in the chart, it appears that the last three times the MVRV ratio for this group has exceeded 20%, LINK price has seen a sharp decline.
In the first two cases this drop was 34% each, while in the third and final case it was around 14%, which is still quite a remarkable drop. If this pattern is anything to go by, Chainlink could see another such correction soon.
LINKPrice
Chainlink has seen another 9% increase in the past 24 hours as the price has now settled above $10.1.
LINK has been going up in the last few days | Source: LINKUSD on TradingView
Featured image from iStock.com, charts from TradingView.com, Santiment.net
