MVRV Z-Score is a bitcoin chart that uses blockchain analysis to identify periods where Bitcoin is extremely over or undervalued relative to its 'fair value'.
It uses three metrics:
1. Market Value (blue line): The current price of Bitcoin multiplied by the number of coins in circulation. This is like market cap in traditional markets i.e. share price multiplied by number of shares.
2. Realised Value (orange line): Rather than taking the current price of Bitcoin, Realised Value takes the price of each Bitcoin when it was last moved i.e. the last time it was sent from one wallet to another wallet. It then adds up all those individual prices and takes an average of them. It then multiplies that average price by the total number of coins in circulation.
In doing so, it strips out the short term market sentiment that we have within the Market Value metric. It can therefore be seen as a more 'true' long term measure of Bitcoin value which Market Value moves above and below depending on the market sentiment at the time.
3. Z-score (red line): A standard deviation test that pulls out the extremes in the data between market value and realised value.
The MVRV Z-score has historically been very effective in identifying periods where market value is moving unusually high above realised value. These periods are highlighted by the z-score (red line) entering the pink box and indicates the top of market cycles. It has been able to pick the market high of each cycle to within two weeks.
It also shows when market value is far below realised value, highlighted by z-score entering the green box. Buying Bitcoin during these periods has historically produced outsized returns.
MVRV Z-Score bitcoin chart is useful for predicting Bitcoin price at the extremes of market conditions. It is able to forecast where Bitcoin price may need to pull back when MVRV Z-score enters the upper red band, and also when $BTC price may rally after spending time in the lower green band.
Historically it has picked major Bitcoin price highs to within 2 weeks.
@aweandwonder who has unfortunately since deleted the original article and his online profile.
He built on the initial work to create MVRV by Murad Mahmudov and David Puell
The MVRV ratio bitcoin tool is also shown on the chart above. See the chart key to select MVRV scores which are represented by the black line on the chart.
This metric takes the ratio between market value and realized value and plots that ratio over time. MVRV was created to show periods of market euphoria when the market value was considerably higher than realized value (the cost basis level for bitcoin purchases). While MVRV does show broad trends of where the price is overbought or oversold, it is less effective than MVRV Z-score for specifically identifying market cycle tops and bottoms.
You can view the MVRV metric on the chart above by selecting ‘MVRV’ on the chart key and de-selecting MVRV Z-Score.
November 2018
