Imagine you’re checking the weather, not just to see if it’s sunny or rainy today, but to find out if the temperature is unusually high or low for this time of year.
In the world of crypto, a special tool does something similar for the price of bitcoin.
The MVRV Z-Score acts like a market weather report, giving you clues about when conditions in the crypto market are unusually heated or colder than usual.
Want to know how the MVRV Z-Score helps you spot these rare market moments? Let’s take a closer look.
📖 What is MVRV Z-Score?
The MVRV Z-Score is an on-chain metric that identifies periods when BTC is extremely overvalued or undervalued relative to its “fair value.” It combines blockchain data with statistical analysis to create a market sentiment indicator.
The MVRV Z-Score is a refined version of the Market Value to Realized Value ratio (MVRV) using the following formula:
MVRV Z-Score = (Market Value - Realized Value) / Standard Deviation(Market Value)
- Market Value (MV): Bitcoin’s current market capitalization (price × circulating supply).
- Realized Value (RV): The total value of all bitcoins based on the price they last moved on-chain, reflecting the average cost basis of holders.
- Standard Deviation: Measures historical volatility in market value, allowing the Z-Score to show how extreme the current relationship between MV and RV is.
Basically, it captures the degree of deviation between market cap (investor speculation) and realized cap (actual cost basis), normalized by volatility.
The metric was initially developed by Murad Mahmudov and David Puell, and further refined by @aweandwonder.
🔍 How to Read the Chart
This chart, titled “BTC: MVRV Z-Score”, shows how far Bitcoin’s market value deviates from its realized value, standardized using a Z-score. It is a long-term cycle indicator used to identify tops and bottoms in the BTC market.
📊 Chart Components
- 🟠 Orange Line: MVRV Z-Score
- ⚫ Black Line: BTC Spot Price [USD]
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Shaded Bands:
- 🟥 Red Zone (Z > ~7): Overvaluation
- 🟩 Green Zone (Z < ~0): Undervaluation
📈 Interpreting the Chart
Historically, when market value is much higher than realized value, it signals a market top (red zone). And when realized value exceeds market value, it often marks a market bottom (green zone).
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Z-Score > 7-9 (Red Zone):
- Bitcoin is strongly overvalued.
- Historically aligns with market tops (2011, 2013, 2017, 2021).
-
Z-Score < 0 (Green Zone):
- Bitcoin is undervalued, often below realized cap.
- Historically aligns with market bottoms (2011, 2015, 2019, 2022).
-
Neutral Zone (around 0–2):
- Suggests bitcoin is trading near its fair value, with neither extreme greed nor fear dominating the market.
In the shown chart, we can observe:
- The Z-Score is rising but well below historic peak levels, suggesting the market has room to grow before reaching euphoric territory.
- In 2017 and 2021, the MVRV Z-Score exceeded 7 as bitcoin reached all-time highs, signaling overvaluation before major corrections.
- In late 2018 and 2022, the Z-Score dropped below 0, highlighting undervalued conditions and potential buying opportunities.
The Z-Score Component Explained
The Z-Score is what transforms the basic MVRV ratio into the more powerful MVRV Z-Score:
- Standard Deviation Measurement: The Z-Score calculates how far the current relationship between Market Value and Realized Value deviates from the historical norm.
- Statistical Significance: By expressing the difference in terms of standard deviations, the Z-score provides context about how unusual the current market conditions are.
- Standardized Comparison: Allows for meaningful comparison across different market cycles and time periods.
- Outlier Detection: Helps identify extreme market conditions that historically signal major trend reversals.
🧠 Why Traders Care
The MVRV Z-Score blends price, blockchain data, and statistics to help identify when BTC is historically expensive or cheap, making it a useful tool for timing the market.
- When the Z-score enters the pink/red zone, it historically signals market cycle tops.
- When the Z-score enters the green zone, it indicates bitcoin is undervalued.
- Has identified major market highs within a two-week window.
- Buying during green zone periods has historically produced outsized returns.
🟠 Summary Table
The MVRV Z-Score is a statistically enhanced on-chain metric that compares Bitcoin’s market value to its realized value, adjusted for historical volatility.
It’s widely used to identify periods of extreme overvaluation (potential tops) and undervaluation (potential bottoms).
| MVRV Z-Score Range | Interpretation | Market Signal |
|---|---|---|
| > 7 | Extreme overvaluation | Probable macro top |
| 3-6 | Bullish acceleration | Caution if sustained |
| 1-3 | Healthy bullish zone | Accumulation trend |
| 0-1 | Neutral / fair value | Reaccumulation |
| < 0 | Undervalued | Probable market bottom |