After a massive sell-off last week, one of the bitcoins Closely watched on-chain metrics are approaching a threshold that has historically marked bear market lows.
The metric is called the market value to realized value (MVRV) Z-score. Every major bottom of Bitcoin’s cycle has coincided with the Z-Score touching or briefly falling below zero (in the green zone, on the chart).
And right now it is knocking on the door of the area that has coincided with the lowest point of previous bear markets. It happened in 2011-2012 when Bitcoin experienced its first major crash. It happened again in 2014 and late 2018. Most recently, it fell below zero in the second half of 2022, marking a price bottom that paved the way for a three-year bull run.
What is the MVRV Z score?
The metric compares the deviation of bitcoin’s market value (what the token is worth right now based on the current market price) with its realized price.
The second figure, widely considered close to fair value, is obtained by averaging the prices of each bitcoin since the last time a transaction was made on the chain.
When the market price is well above fair value, bitcoin is considered expensive relative to its own history. When the market price falls towards or below fair value, bitcoin is cheap. The Z-Score takes the difference between those two numbers and measures how extreme it is statistically.
The result is a single line that cuts through the noise of day-to-day price action and shows where the price is in relation to the broader market cycle. A high Z-score means the market is heating up, and a low or below zero Z-score means the opposite.
According to BitBo, the Z-Score currently sits at 0.24, just above the upper limit of the historically significant “green zone,” which starts at approximately 0 and extends slightly below zero.
In other words, it is very close to the “accumulation” zone. To be clear, this is not a price level, but just a measure of how stretched or compressed bitcoin’s market value is relative to its realized value.
Absolute background?
However, the fund may not have bottomed yet, as the behavior of portfolio holders suggests that a little more selling is still needed for it to truly bottom out.
Onchain data suggests that the long-term holder MVRV (LTH-MVRV), which measures the profitability of coins held for at least 155 days, and the short-term holder MVRV (STH-MVRV), which focuses on coins held for less than 155 days, have not yet converged.
When these two data points close the gap, historically, a major cycle low forms. This was previously seen in 2015, 2019 and 2022.
However, currently, STH-MVRV stands at 0.84, while LTH-MVRV remains elevated at 1.29. Meaning that long-term holders still have relatively large unrealized gains, indicating that further declines in bitcoin may be required before a typical bear market bottom is established.
While it is impossible to time market lows, after last week’s brutal sell-offs that wiped hundreds of billions off the market value of cryptocurrencies, the conditions that have historically preceded rallies are beginning to emerge.
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