One way to tell if crypto is cheap or expensive

MVRV Z-Score: A useful metric to determine optimal times to buy or sell

Author

Justin
June 16, 2024

Hey everyone,

We’ve been talking a lot about metrics in prior articles, so it’s about time we talk through one.

One metric that is useful is called the MVRV Z-Score (created by @aweandwonder who is no longer on X).

MVRV Z-Score basically measures how much Bitcoin investors are in profit, or loss. This metric (orange line below labeled MVRV Z-Score) indicates this in the following way:

  • When the metric is high…Bitcoin investors have large profits

  • When the metric is low…Bitcoin investors have large losses

What we can see from the chart below is that it’s usually better to be buying when Bitcoin investors have a big loss, then when they have big wins on the table, because the value of Bitcoin (black line below) tends to reverse at the extremes.

How to use this:

  • When the Z-score (orange line) is in or near the green zone…its often a great time to be buying…like the best time to be buying

  • When the Z-score is near the red area its likely a better time to be selling

Note: Notice how the peaks of each orange line have been going down over time. I suspect that downward trend will continue.

Also, personally I like to look at lots of these metrics to get a read on the market. Its always possible that they miss something / stop working at some point.

So how does MVRV Z-Score work?

It measures the difference between two values:

  • Bitcoin’s market cap - This is current value of all Bitcoin

  • Bitcoin’s realized cap - This is the sum of all the prices each Bitcoin was last bought / sold at (includes transfers too)

MVRV Z-score is not purely the difference between these two values though. It actually takes the difference and then translates it into a statistical value called a Z-Score to highlight both extreme highs and lows.

Where is the MVRV Z-Score today?

It’s around a value of 2 - indicating Bitcoin isn’t super cheap or expensive.

Hint: Making the really big bucks in crypto is about buying when its super cheap. It’s also when everyone is the most afraid to buy.

That doesn’t mean that there aren’t more profits to be had in this bull run though.

Have a nice weekend.

Cheers,

Justin

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