Bitcoin MVRV-Z-Score for the analysis of Bitcoin

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The Bitcoin MVRV-Z-Score is a metric that is used to measure the difference between the realized value and the market value.

With the help of blockchain analysis, periods are determined in which the price of Bitcoin is extremely overvalued or undervalued in relation to the “fair value”.

This indicator is an extension or change of the MVRV indicator.

What are the basics of the Bitcoin MVRV-Z score?

This metric is based on the first work by Murad Mahmudov and David Puell from Adaptive Capital to create MVRVs.

The Bitcoin MVRV-Z score is used to assess when an asset is over- or undervalued in relation to its “fair value”.

This is based on the difference between the market value and the realized value. And it can be seen how it looks in the following picture.

The Bitcoin MVRV-Z-Score measures the difference between the realized value and the market value.
The Bitcoin MVRV-Z-Score measures the difference between the realized value and the market value.

1. Market value (Market capitalization, blue line): The current price of Bitcoin multiplied by the number of coins in circulation.

2. Realized value (Realized cap, orange line): Instead of taking the current price of Bitcoin, the realized value takes the price of each Bitcoin when it was last moved, i.e. the last time it was sent from one wallet to another.

Then all of these unit prices are added up and we take an average of them.

Then we multiply this average price by the total number of coins in circulation. In this way, we eliminate the short-term market sentiment that we have within the market value metric.

Therefore, it can be seen as a “more real” long-term measure of Bitcoin price, and not the market price that moves at this point in time, depending on investor sentiment.

What does it tell us and how do you use it?

MVRV is a good tool for assessing whether market participants are making a profit or not.

A negative MVRV index indicates that market participants are not making a profit or are making a minimal profit. Conversely, a positive MVRV means that asset holders are likely to make a profit.

That said, Bitcoin is generally considered overvalued when the MVRV exceeds 3.7 and undervalued when it is below 1.

MVRV-Z in turn tracks the distance of the Z-Score between the market value and the realized value.

The Z-Score is the number of standard deviations above or below the mean. In other words, MVRV-Z indicates how far the market value is separated from the realized value at a certain point in time.

The MVRV-Z score can be determined using the following expression::

The Bitcoin MVRV-Z score was very effective in the past in identifying periods when the market value is unusually high above the realized value.

These periods are identified when the indicator enters the upper pink zone and shows the upper part of the market cycles.

It is here when the price is maximum, so it was convenient to take profits in these areas.

The Bitcoin MVRV-Z score was able to identify the highest market in each cycle two or three weeks in advance.

It also shows us when the market value is significantly below the realized value. This occurs when the display enters the green zone.

Buying at the price of Bitcoin in these periods within the green zone has historically brought enormous returns.

The last time the indicator was in this zone was in the fall of last March 12. I hope you took advantage of it.

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