[On-Chain Analysis] How ETFs Changed the Bitcoin MVRV Floor Formula

1. Why has the MVRV Ratio moved differently since the ETF approval?

Since the approval of ETFs, the MVRV Ratio has shown movements that are clearly different from past cycles.

In previous bullish cycles, the MVRV Ratio surged alongside price increases, but after the ETF approval, it has struggled to rise above a certain level, forming a range in specific intervals.

Why is that?

Some argue that the lower price increase rate of Bitcoin in this cycle compared to the past is the reason. However, this alone does not adequately explain the current changes.

One of the most significant changes to note in this cycle is the emergence of Bitcoin spot ETFs and the resulting changes in trading and settlement structures.

To intuitively verify this, let’s look at the "Segmented MVRV Ratio (ETF Entities Only)" which isolates ETF-related entities.

This metric calculates the "MVRV Ratio" specifically for ETF-related entities.

The results are very clear when we examine this data.

The Segmented MVRV Ratio (ETF Entities Only) has been consistently hovering around 1.

Ultimately, the trading related to ETFs has been reflected in the overall MVRV Ratio, leading to a significant divergence from historical data and past cycles.

If ETFs continue to play a crucial role in the Bitcoin market, it is highly likely that these structural impacts will persist.

Therefore, simply drawing horizontal lines based on past data to label certain MVRV intervals as 'overvalued' and others as 'undervalued' will likely decrease in accuracy moving forward.

In fact, this issue has already become apparent in the last bullish cycle.

2. So, is the existing valuation model still valid if we exclude ETF-related entities?

I was also very curious about this aspect.

Thus, I examined the "Adjusted MVRV Ratio (ETF-Excluded)" excluding ETF-related entities.

The results were intriguing.

In the last bullish cycle, the existing "MVRV Ratio" remained around 2.7 even at its peak.

In contrast, the "Adjusted MVRV Ratio" surged to as high as 3.51.

By removing the influence of ETF-related entities, the movement has approached the overvaluation criteria of MVRV used in past cycles.

This is a very important difference.

To continue using the existing "MVRV Ratio," a new interpretative standard that aligns with the market structure post-ETF is necessary.

Conversely, if one wishes to continue utilizing the analytical standards used in past MVRV Ratios, it is essential to reference the "Adjusted MVRV Ratio" as well.

The current data shows that the difference is quite pronounced.

3. How much difference is there currently between the existing "MVRV Ratio" and the "Adjusted MVRV Ratio"?

Currently, the existing "MVRV Ratio" stands at 1.21.

If we apply the criteria from past cycles, it suggests that a significant adjustment has already taken place, and even if additional price shocks occur, interpretations may arise that "there is only one more left" or that the current price is already near the 'knee' of the market bottom.

However, the 'Adjusted MVRV Ratio' is currently at 1.47.

There is a considerable difference between the two metrics.

When comparing where the MVRV Ratio was at 1.47 during past bearish cycles, I find it difficult to view the current situation as merely a 'knee'.

Rather, it could still be interpreted as being closer to the 'body' or 'shoulder' (indicated by the yellow circular mark).

One might think that the adjusted MVRV Ratio is not trustworthy.

However, one thing is clear.

The existing MVRV Ratio did not reach the historical peak standards during the last bullish cycle.

Thus, it is worth questioning whether it is truly rational to apply past standards to the structurally altered MVRV Ratio post-ETF approval.

Conversely, the adjusted MVRV Ratio excluding ETF-related entities has shown movements much more similar to the analytical standards of past cycles.

As cycles repeat, the peaks of MVRV are decreasing, suggesting that the lows may gradually rise as well.

Considering this point, the current figure of 1.47 is still high compared to past cycles.

Summary

If we apply past analytical standards directly to the existing MVRV Ratio, it may not adequately reflect the changes in market structure post-ETF, leading to a decrease in analytical accuracy.

To continue utilizing the existing MVRV Ratio, new standards need to be established.

Conversely, if one wishes to maintain the framework of past MVRV analysis, it is necessary to reference the "Adjusted MVRV Ratio" alongside it.

Given the importance of ETFs in the current Bitcoin market, it is difficult to exclude these structural changes from data interpretation.

4. Why has the Supply-related data increased so significantly in this cycle?

In this cycle, there has been a notable increase in supply-based data such as Supply in Profit and Supply in Loss compared to the past.

There are several reasons for this, but the changes in trading and settlement structures following ETF approval are among the most significant factors.

In particular, the current "Supply in Loss" has increased to historically high levels.

From this data alone, one could interpret that "a massive amount of Bitcoin is currently in a state of loss." This is indeed true.

However, there is an important limitation that must be considered when interpreting supply-related data.

Supply in Loss shows the amount of supply in a loss state, but it does not distinguish how much loss burden that amount actually carries.

Even a loss of just 1 dollar is included in Supply in Loss.

In other words, the amount that recorded a loss of 1 dollar is aggregated the same as the amount that recorded a loss of 10,000 dollars.

However, the loss burden and stress that these two cases impose on market participants are entirely different.

Therefore, it is necessary to quantify not only "how much supply is in a loss state?" but also "what level of burden and stress is the current loss imposing on the market?".

The indicator that can confirm this is the Unrealized Loss Stress Ratio (ULSR).

ULSR quantifies the relative burden and stress formed by the accumulated unrealized losses in the market by dividing unrealized losses by realized market capitalization.

Looking at past cycles, the ULSR rose to about 45% when major market bottoms were formed.

However, the current ULSR is only about 21%.

Here, a very interesting divergence occurs.

While Supply in Loss is at historically high levels, the relative loss stress shown by ULSR is much lower than that of past major bottom periods.

In other words, while there is a significant amount of supply currently in a loss state, the relative burden that this loss imposes on the entire market has not yet reached the levels of past major bottoms.

I believe this is a very important point for interpreting the current market.

5. Shouldn't we also exclude the impact of ETFs from ULSR?

That's correct. When examining the "Adjusted Unrealized Loss Stress Ratio" calculated based on realized market capitalization excluding ETF-related entities, differences emerge.

While the existing ULSR is around 21%, the "Adjusted Unrealized Loss Stress Ratio" rises to about 30%. This means that when evaluated based on realized market capitalization excluding ETF-related entities, the current relative unrealized loss stress is higher than the existing ULSR.

However, 30% is still low compared to the stress levels observed at the bottoms of past major cycles.

The core point is simple.

The structure and trading patterns of the Bitcoin market have changed since the ETF approval, and thus the standards for interpreting existing on-chain data also need to change.

The fact that there is a lot of Supply in Loss does not mean that the market is actually bearing a significant loss burden.

Supply in Loss shows the amount of supply in a loss state, but it does not distinguish between a loss of 1 dollar and a loss of 10,000 dollars.

The Unrealized Loss Stress Ratio (ULSR) compensates for these limitations by quantifying the relative loss burden and stress that unrealized losses impose on the market.

Ultimately, what matters is not the specific data itself.

If the market structure has changed, the process by which data is generated must also change, and if the data has changed, the standards for interpreting it must also adapt.

It has been over two years since Bitcoin spot ETF trading began.

ETFs have now become a structural element in the Bitcoin market that cannot be ignored.

Therefore, rather than interpreting existing data using the same standards as in the past, it is necessary to identify which data is influenced by the changed market structure post-ETF and to develop new standards accordingly.

And MVRV and ULSR•UPSR are just the beginning.

It is highly likely that similar changes are already underway in other on-chain data that we have become accustomed to using.

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