The Bitcoin MVRV Z-Score has historically been one of the most effective tools for identifying market cycle tops and bottoms in Bitcoin. Today, we're excited to share an enhancement to this metric that makes it even clearer for today's dynamic market conditions.
What is Bitcoin MVRV Z Score?
The MVRV Z-Score is produced by analyzing the ratio between Bitcoin's full cap (the average acquisition cost of all Bitcoins in circulation) and its market cap (current network valuation). By normalizing this ratio using Bitcoin price volatility (measured as the standard deviation), the Z-Score highlights periods of overvaluation or undervaluation compared to historical norms.
Peaks in the red zone indicate overvaluation, suggesting the best opportunities for profit taking. Lows in the green zone indicate undervaluation, often indicating strong rally opportunities. Historically, this metric has been extremely accurate in identifying key market cycle boundaries.
Although powerful, the traditional MVRV Z-Score has its limitations. In past cycles, the Z-Score reached values of 9–10 at the top of the market. However, in the last round, the score only reached about 7. This could be due to the double round circle instead of the sharp top we usually get. Nevertheless, it is necessary to incorporate the dynamics of the growing market, with increased institutional involvement and changing investor behaviour.
The improved MVRV Z Score
The MVRV Z-Score normalizes the raw MVRV data using Bitcoin's entire price history, which includes the extreme volatility of its early years. As Bitcoin matures, these early data points may change its relevance to current market conditions. To address these challenges, we have the MVRV Z-Score 2YR Rolling. Instead of using Bitcoin's entire price history, this version calculates volatility based only on the previous two years of data.
This approach better describes Bitcoin's growing market cap and moving dynamics and ensures that the metric adapts to more recent trends, offering greater accuracy for contemporary market analysis. It is still very good at identifying the tops and bottoms of a market cycle but varies according to today's conditions. In the last cycle, 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 still identifies strong rally zones with precision high
Raw MVRV ratio
Another complementary approach involves analyzing the MVRV ratio not adjusted for volatility. By doing this, we can see the MVRV ratio of the previous cycle at a height of 3.96, compared to 4.72 in the cycle before that. These values suggest less bias, which may offer a more stable framework for planning future price targets.
Assuming an realized price of $60,000 (including the current expected increase over the next six months) and an MVRV ratio of 3.96, peak price could be close to $240,000. If a reduced yield reduces the ratio to 3.0, the top price may still reach $180,000.
Decision
Although the MVRV Z-Score remains one of the most effective tools for charting market cycle peaks and troughs, we must be prepared for this metric to possibly not reach the same levels. similar to previous rounds. By converting this data into a better factor in Bitcoin's fluctuating market dynamics, we can account for the reduction in volatility as BTC grows.
For a more in-depth look at this topic, check out a recent YouTube video here:
Increasing The Bitcoin MVRV Z-Score
For more detailed Bitcoin analysis and to access advanced features such as live charts, personalized indicator alerts, and in-depth business reports, check out 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.
