The Bitcoin MVRV Z-Score has historically been one of the most effective tools for identifying the tops and bottoms of the Bitcoin market cycle. Today, we are pleased to share an improvement to this metric that makes it more aware of today’s dynamic market conditions.
What is Bitcoin MVRV Z-Score?
the MVRV Z-score It is derived by analyzing the ratio between Bitcoin’s realized cap (the average acquisition cost of all Bitcoins in circulation) and its market capitalization (the network’s current valuation). By standardizing this ratio using Bitcoin’s price volatility (measured as standard deviation), the Z-Score highlights periods of overvaluation or undervaluation compared to historical norms.
Peaks in the red area indicate overvaluation, indicating ideal profit-taking opportunities. Bottoms in the green zone indicate a devaluation of the currency, and often indicate strong accumulation opportunities. Historically, this measure has been remarkably accurate in identifying the extremes of a major market cycle.
Although powerful, the traditional MVRV Z-Score has its limitations. In past sessions, the Z-Score has reached values of 9-10 during market tops. However, in the last cycle, the score only reached around 7. This may be due to the rounded double peak cycle instead of the sharp peak we usually see. Regardless, there is a need to take into account evolving market dynamics, with increasing institutional participation and changing investor behaviour.
Improved MVRV Z-score
MVRV Z-Score standardizes raw MVRV data using Bitcoin’s entire price history, which includes the extreme fluctuations of its early years. As Bitcoin matures, these early data points may distort its relevance to current market conditions. To address these challenges, we developed MVRV Z-Score 2YR Rolling. Instead of using the entire Bitcoin price history, this version calculates volatility based on data for the previous two years only.
This approach better accounts for Bitcoin’s growing market value and changing dynamics and ensures the metric adapts to newer trends, providing greater accuracy for contemporary market analysis. It still excels at identifying the tops and bottoms of the market cycle, but it adapts to modern conditions. In the last session, this version captured a higher peak value than the traditional Z-Score, aligning more closely with the price action of 2017. On the downside, it continues to identify strong accumulation areas with high accuracy.
Raw MVRV ratio
Another complementary approach involves analysis MVRV ratio Without standardizing fluctuations. By doing this, we can see that the MVRV ratio for the previous cycle peaked at 3.96, compared to 4.72 in the cycle before that. These values indicate less deviation, and likely provide a more stable framework for forecasting future price targets.
Assuming a realized price of $60,000 (taking into account the current expected increase over the next six months) and an MVRV ratio of 3.96, the potential peak price could be close to $240,000. If diminishing returns bring the ratio down to 3.0, the peak price could reach $180,000.
conclusion
While the MVRV Z-Score remains one of the most effective tools for timing the tops and bottoms of a market cycle, we need to be prepared for this metric to likely not reach the same heights as previous cycles. By adapting this data to better take into account Bitcoin’s changing market dynamics, we can account for lower volatility as Bitcoin grows.
For a more in-depth look at this topic, watch a recent YouTube video here:
Improve Bitcoin MVRV Z-Score
For a more detailed analysis of Bitcoin and to access advanced features such as live charts, custom trend alerts, and in-depth industry reports, see Bitcoin Pro Magazine.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always do your own research before making any investment decisions.