Key Takeaways
Bitcoin (BTC) on-chain indicator readings are often alike during market cycle bottoms and tops. One specific feature they share is that the market and realized capitalizations differ significantly during market bottoms and tops.
The MVRV Z-score indicator measures the difference between the two. Let’s analyze the indicator to see if BTC is currently undervalued and compare it to the previous market cycle. insights to estimate the end of the current cycle.
Bitcoin’s realized cap measures the market capitalization valuing each BTC when it last moved, rather than the current price. So, it gives a more stable measure of the value since it accounts for long-term holders and does not take into account short-term volatility.
The realized cap has increased drastically since the start of 2024. There is an interesting discrepancy happening since March 2016, because the BTC price has fallen (red circle) while the realized cap is increasing to new highs.
Bitcoin’s realized price is doing the same and is currently at $31,891.
In both 2018 and 2022, the realized cap fell once the bear market started. Since the realized cap is not falling, it suggests that the bear market has not started yet.
Rather, the current reading is more similar to that between July – Oct. 2021, when the realized cap reached new all-time highs as the price was recovering for a correction.
The MVRV Z-Score compares Bitcoin’s market value to its realized value to determine over- or undervaluation. Readings above 7 signal market tops, while readings below 0 indicate bottoms. Since 2013, the indicator has consistently marked market bottoms, though tops have varied, with highs of 12.52 in 2013, 11.01 in 2017, and 7.55 in 2021.
The MVRV Z-Score dropped below 0 in June 2022, stayed there for six months, and peaked at 3.17 in March 2023 before falling to 1.60. In our previous analysis, we determined that the current trend suggests room for another price high, though the indicator is not likely to reach overbought territory again.
MVRV readings from the current cycle show Bitcoin undervaluation. The indicator has fallen alongside the price since March. However, it has done so at a much faster rate. This is because while the actual Bitcoin price has fallen, the realized one has increased. In turn, this caused the indicator to fall faster than the price.
The MVRV Z-Score is currently at 1.66, the same level as it was in January 2024, when BTC was at $46,000.
The two other times that the indicator fell at a faster rate than the BTC price were in Sept. 2020 and Jan. 2021. Both times marked a temporary correction before the price accelerated its increase and moved to new highs.
So, the MVRV indicator suggests the BTC price is undervalued. The readings are similar to those before the upward movement accelerated in the previous market cycles.
The Bitcoin price is currently undervalued when using the MVRV Z-score indicator. This is because while the BTC price has fallen, the realized one has increased. The readings are similar to those before the upward movement accelerated in the previous cycle.