Bitcoin MVRV-Z score is a metric that aims to measure the deviation between the value realized and the value of the market. Uses the analysis of Blockchain to identify periods in which the price of Bitcoin is extremely overvalued or undervalued in relation to its ‘fair value’. This indicator is an extension of or amendment made to this indicator MVRV.
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What are the fundamentals of Bitcoin MVRV-Z score?
This metric is based on the initial work to create MVRV by Murad Mahmudov and David Puell of Adaptive Capital. Bitcoin MVRV Z-score is used to assess when an asset is overvalued or undervalued in relation to its “fair value”. This is based on the deviation between market value and the value achieved. And appreciated as it looks in the picture below. Bitcoin MVRV Z-score to measure the deviation between the value realized and the value of the market. 1. Market value (Market cap, blue line): the current price of a Bitcoin multiplied by the number of coins in circulation. 2. Value realized (Realized cap, orange line): instead of taking the current price of Bitcoin, the value achieved takes the price of each Bitcoin when they moved for the last time, that is to say, the last time I was sent from one wallet to another. Subsequently we add up all those individual prices and take an average of them. Then, we multiply that average price by the total number of coins in circulation. By doing so, we eliminate the feeling of short-term market that we have within the metrics of market value. Therefore, it can be seen as a long-term measure more ‘real’ the price of Bitcoin, instead of the market price that moves depending on the investor sentiment at that time.
What does that indicates and how to use it?
MVRV is a good instrument to estimate if the market participants make profits or not. An index of negative MVRV indicates that market participants do not gain or have earnings minimal. On the contrary, if MVRV is positive indicates that the owners of assets likely to gain profits. That is to say, Bitcoin is generally considered overvalued when MVRV exceeds 3.7, and undervalued when it is below 1. For its part, MVRV-Z, tracks the distance of the Z-score between the market value and the value achieved. The Z score is the number of standard deviations above or below the mean. In other words, MVRV-Z tells us how to separate the value realized is the market value, at a given time. MVRV Z-score can be determined with the following expression: Bitcoin MVRV Z-score, has historically been very effective to identify periods in which the market value moves unusually high above the value achieved. These periods are identified when the indicator enters the upper zone rosa and indicates the upper part of the cycles of the market. It is here when the price is at record highs so, it has been advisable to take profits in these areas. Bitcoin MVRV Z-score, has been able to identify the highest market of each cycle, with two or three weeks in advance. It also shows us when the market value is far below the value achieved. This happens when the indicator enters the green zone. Buy the price of Bitcoin during these periods in the green zone, historically has produced yields huge. The last time the indicator was within this area was during the fall of last march 12. I hope you have taken advantage of.