On-chain data shows that the Z-score of Bitcoin’s Market Value to Realized Value (MVRV) is currently giving a bearish signal for the BTC market.
Bitcoin’s MVRV Z-Score Recently Experienced a Bearish Cross
In a new article on X, CryptoQuant author Axel Adler Jr discussed the latest trend in Bitcoin MVRV Z-Score. The MVRV Z-Score refers to a metric that tracks the difference between BTC market cap and realized cap, divided by the standard deviation of the market cap.
Market cap here is naturally just the total valuation of the cryptocurrency at the current spot price. Realized cap, on the other hand, is an on-chain model that calculates the coin’s capitalization differently.
Instead of taking the current price as the same value for all coins in circulation, it uses the last price each coin was moved at on the blockchain as its value.
Since the last time a coin was transferred was likely the last time it changed hands, the price at that time would indicate its current cost basis. Thus, the realized cap is the sum of the cost bases of all tokens in circulation.
One way to think of this sum is as a measure of the investors’ capital in the cryptocurrency. Since the MVRV Z-Score compares the market capitalization, which is nothing more than the amount of capital that investors currently hold, to that initial investment, it tells us about the investor’s profitability.
Below is the chart shared by the analyst that shows the trend of the 30-day and 365-day moving averages (MA) of this Bitcoin indicator over the past few years.
As seen in the chart above, the 30-day moving average of Bitcoin MVRV Z-Score has been declining in recent months, suggesting that investor profitability has been declining.
With the latest continuation of the decline, this MA has crossed below the 365-day MA, suggesting that the average MVRV Z-Score value over the past month has been lower than that of the past year.
In the chart, the CryptoQuant author highlights some areas of the indicator based on the pattern of these two lines. Historically, the 30-day MA crossing below the 365-day MA has signaled a bearish phase for Bitcoin (colored in light red).
Interestingly, such a bear market signal had also emerged in January 2020, after the market cooled off from the 2019 rally. This bearish period was followed by another foray into bullish territory (light green), but the unexpected COVID-19 crash reset the market once again before the bull market could get underway in earnest.
While it is possible that the latest bearish market signal in the MVRV Z-Score could suggest a transition away from a bull market for Bitcoin in the current cycle, it could very well play out as the market did in January 2020, with this crossover serving as a healthy reset for a true bull rally.
BTC Price
At the time of writing, Bitcoin is trading at around $57,700, down more than 6% from last week.
