MVRV Z-Score evaluates whether Bitcoin is overvalued or undervalued relative to its “fair value.” Instead of using the traditional Z-Score method, MVRV Z-Score compares market value to actual value.
When the market value, measured by network valuation of the spot price multiplied by the supply, is significantly higher than the actual value, expressed as cumulative inflows into the asset usually signals a market top ( red area). Conversely, a market value significantly lower than the actual value usually indicates that the market is at a bottom (green zone).
Historically, spikes in the MVRV Z-Score have often preceded significant market corrections. Notably, the MVRV Z-Score peaked during the 2013, 2017, and 2021 bull runs, each signaling an overvalued market and subsequent price declines.
In recent context, early 2024 saw the MVRV Z-Score rise sharply following Bitcoin’s pre-halving price rally, ahead of historical trends. This spike, which suggests the market is overvalued, has since dropped, consistent with a typical post-peak correction period.
In 2023, MVRV Z-Score shows stability, reflecting a balanced market without too large deviations. However, the sharp increase in early 2024 and the subsequent decline highlight the predictive ability of the MVRV Z-Score in identifying potential market peaks and correction periods. The current decline from 2024 highs, while remaining above historic lows, suggests the market is correcting but not yet undervalued.
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According to Cryptoslate
