Altcoins have entered a dangerous territory, according to on-chain indicators that suggest most altcoins are currently overbought. The Market Value to Realized Value (MVRV) ratio, a metric tracked by the on-chain analytics firm Santiment, shows that altcoins have been generating high profits recently. The realized cap, which accounts for the last price at which a token changed hands on the blockchain, is used to calculate the MVRV ratio. This ratio compares the market cap of an asset with its realized cap to determine the profitability ratio for investors.
Historically, a high MVRV ratio has indicated that an asset is overheated, while a low ratio suggests it is underbought. Santiment has identified “opportunity” and “danger” zones based on these patterns. The MVRV ratio has been negative for most altcoins, signaling that they are currently in the danger zone where traders hold high profits.
While a few altcoins are lagging behind, the majority have generated profits for investors on a mid to long term timescale. This indicates that the market is overbought, according to Santiment. The opportunity zone, where investors hold fewer profits, presents a potential buying opportunity, but currently, no assets are in this region.
Although being in the danger zone does not necessarily mean a massive correction is imminent, Santiment warns that there is a higher risk than average in buying or opening new positions during a prolonged market surge. Ethereum, in particular, has seen a surge in price above $2,900 while Bitcoin has remained relatively stagnant.
The decoupling of Ethereum from Bitcoin is evident in the recent price movements, with Ethereum surging while Bitcoin remains sideways. Overall, the altcoin market is showing signs of being overbought, which could be a bearish signal for traders. It is important for investors to be cautious and consider the risks associated with buying or holding altcoins in the current market conditions.
