This is the so-called MVRV model, which automatically measures how close an asset is likely to be to a „danger zone“ (i.e. a possible point of sale) or an „opportunity zone“ (possible point of purchase).
The model is relatively complex, and not easy to understand for those who do not trade, but the result is a fairly simple chart where a red area is highlighted when the price is in a danger zone, or a green area when it is in an opportunity zone.
According to Santiment’s statement, this model reveals the state of mind about a given asset at a specific time, and mathematically measures the probability of future price movement.
Buy or sell Bitcoin: red and green zones
The so-called „danger zone“ occurs when the average yields of traders become too high and too fast, indicating that the asset is becoming overvalued.
The concept of „zone of opportunity“ instead is what lies at the opposite end of the danger zone within this model.
This technique can be applied to the price of any asset of which you have the necessary data to make these calculations, and in particular it can be applied to cryptocurrency.
The graph also shows two dotted lines, a green one representing the opportunity zone, and a red one representing the danger zone: the more the maximum level of the green area approaches or exceeds the green dotted line the more there should be good opportunities to buy, while on the contrary the more the minimum level of the red area approaches or exceeds the red dotted line the more there should be opportunities to sell.
For example, according to yesterday’s data, Maker (MKR) and Chainlink (LINK) are now fully in the danger zone, probably due to the incredible yields generated lately.
Instead BTC and ETH would be slightly in the green zone, but not yet above the dotted line.
This model will be further optimized and innovated in the future, for example by introducing historical MVRV thresholds, and it is actually only one of many metrics that Santiment uses. In addition, it is only available to users of the PRO version.
It should be noted, however, that this metric alone does not give any indication that you can earn money by buying in an area of opportunity and selling in a danger zone, but should only be taken as an indication of the probability that this may happen.