Bitcoin: MVRV Z-Score

Benjamin Cowen

Introduction to MVRV Z Score

The MVRV Z score is a metric used to evaluate the market value of Bitcoin compared to its realized value. It is calculated by subtracting the realized cap from the market cap and then dividing by the standard deviation of the market cap.

Indicator for Market Lows and Highs

This indicator can help in timing market lows and highs. Historically, market cycle tops have occurred when the MVRV Z score goes above 6, as seen in 2011, 2013, 2017, and 2021.

Current Cycle

The highest MVRV Z score in the current cycle was around 3.35, which is lower than the scores at previous market cycle tops. This could imply that the current cycle is not yet at its peak, especially if it follows a right-translated cycle pattern similar to the last three cycles.

Right-Translated Cycle Implication

If the current cycle is a right-translated cycle, peaking at the end of the year, the MVRV Z score would likely exceed 6, similar to previous cycles. However, if Bitcoin fails to achieve new all-time highs beyond January, it might indicate a different cycle pattern.

Considerations for Cycle Theories

  • Right-Translated Cycle: If Bitcoin reaches new all-time highs, the likelihood of a right-translated cycle increases.
  • Left-Translated Cycle: If Bitcoin stalls or behaves differently, other cycle theories might need to be considered.

Limitations of the Indicator

While the MVRV Z score is useful, it's not perfect. It can indicate potential tops but is more reliable for timing bottoms due to less fluctuation at market lows.

Historical Performance

The indicator has shown variability at market tops, with scores ranging from 7.68 to 10.66 at previous cycle peaks. It's also noted for potential divergences between price action and the MVRV Z score, which could be indicative of market tops.

Conclusion

The MVRV Z score is a valuable tool for assessing Bitcoin's market value versus its realized value, particularly for identifying potential market tops and bottoms. However, its predictive power for exact tops is limited, making it more useful for timing market lows.