Following last week’s sharp selloff, one of the most closely watched on-chain indicators in the Bitcoin market has moved closer to the region historically associated with bear market bottoms. The indicator in question stands out as MVRV Z-Score, which measures the difference between market value and realized value.
MVRV Z-Score in focus again
This indicator statistically measures how much Bitcoin’s current market value has deviated from its realized value, calculated based on the prices at which it last moved on the network. Bitcoin is considered expensive by historical standards when the market price significantly exceeds the realized value. When the price approaches or falls below this level, it is considered to indicate a relatively cheap region.
In past cycles, significant lows have coincided with periods in which the MVRV Z-Score touched or briefly fell below zero. This situation was seen in the first major collapse between 2011 and 2012, in 2014, in late 2018 and most recently in the second half of 2022. After the subzero movement in 2022, there was a strong rise period in Bitcoin that spanned three years.
Mini glossary: MVRV Z-Score is a measure of how extreme Bitcoin’s market price is relative to its on-chain cost basis. The realized value is based on the average of the prices at which each Bitcoin was last moved on the network and is viewed by many analysts as a near-fair value reference.
According to BitBo data, MVRV Z-Score currently stands at 0.24. This value lies just above the historically significant green zone, which starts at approximately zero and extends slightly below zero. In other words, the indicator is very close to the area that investors see as the accumulation zone.
BitBo data reveals that the MVRV Z-Score sits just above the historically significant green zone at 0.24; This level coincided with bottom formations in past cycles.
Wallet data does not yet provide full bottom confirmation
However, on-chain data also indicates that the final bottom may not have occurred yet. In particular, two separate MVRV indicators that monitor the profitability of long-term and short-term investors have not yet come close to each other. In the past, large cycle bottoms were formed when the gap between these two data closed.
Long-term investors here include addresses that hold coins that have not been moved for at least 155 days. On the short-term investor side, coins held for less than 155 days are monitored. Historically, when the profitability levels of these two groups approached each other, selling pressure was considered to be significantly cleared.
Long-term investors are still in profit
In the current table, while short-term investor MVRV is at 0.84, long-term investor MVRV is higher at 1.29. This difference suggests that long-term investors still have significant unrealized profits. Therefore, some analysts think that additional downward movements in Bitcoin may be required for a typical bear market bottom to form.
While it’s impossible to time market bottoms exactly, some of the conditions historically seen before a recovery have begun to re-emerge following last week’s sell-off that wiped hundreds of billions of dollars from the total value of the cryptocurrency market. However, although the current on-chain chart shows that the bottom signal is strengthening, it does not offer a definitive reversal confirmation.
