After a massive sell-off last week, one of the bitcoins Closely watched onchain metrics are approaching a threshold that has historically marked bear market lows.
The measure is called Market Value to Realized Value (MVRV) Z-Score. Every major dip in the Bitcoin cycle has coincided with the Z-Score touching or briefly dipping below zero (in the green zone, in the chart).
And right now it is knocking on the door of the zone that coincided with the lowest point of previous bear markets. This happened in 2011-2012, when Bitcoin experienced its first major crash. This happened again in 2014 and late 2018. Most recently, it fell below zero in the second half of 2022, marking a price floor that set the stage 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 currently worth based on the current market price – versus its realized price.
The second figure, widely considered close to fair value, is obtained by averaging the prices of each bitcoin since the last on-chain transaction.
When the market price is much higher than its fair value, bitcoin is considered expensive relative to its own history. When the market price falls toward or below fair value, bitcoin is cheap. The Z-Score takes the difference between these two numbers and measures how statistically extreme it is.
The result is a single line that cuts through the noise of daily price action and shows where the price stands in relation to the broader market cycle. A high Z score means the market is overheated, and a low score or below zero means the opposite.
According to BitBo, the Z-Score is currently at 0.24, just above the upper limit of the historically significant “green zone,” which starts at around 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 only a measure of how much Bitcoin’s market value is stretched or compressed relative to its realized value.
Absolute bottom?
However, the bottom may not be reached yet, as the behavior of portfolio holders suggests that it may still take a little more selling for this to truly be reached.
Onchain data suggests that long-term holder MVRV (LTH-MVRV), which measures the profitability of coins held for at least 155 days, and 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 bottom forms. This had already happened in 2015, 2019 and 2022.
However, currently, STH-MVRV stands at 0.84, while LTH-MVRV remains high at 1.29. This means that long-term holders still have relatively large unrealized profits, indicating that further decline in bitcoin may be necessary before a typical bear market bottom is established.
While it’s impossible to predict market bottoms, after last week’s brutal sell-off that wiped hundreds of billions of dollars off the market value of cryptocurrencies, conditions that have historically preceded rallies are beginning to emerge.
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