Question #410 ·
How do on-chain indicators like MVRV and SOPR help beginners understand Bitcoin’s market cycles?
- They indicate Google search volume helping traders time cycles by popularity rather than using on-chain metrics
- They track daily active address counts predicting price spikes based on user growth ignoring cost basis
- They measure GPU usage estimating hash power distribution which has no relation to Bitcoin price cycles
- They highlight profit extremes comparing price to cost guiding investors through cycle highs and lows effectively Right answer
Why is this the correct answer?
This is correct because MVRV and SOPR are on-chain ratios that compare Bitcoin’s market price with the average cost basis of coins or spending profitability. Beginners learn these indicators flag overvaluation when many holders are in profit and undervaluation when most are at a loss. By observing these extremes, investors can gauge when markets may be due for a correction or recovery, helping them time entries and exits within broader market cycles.