MVRV Score

The Market Value to Realized Value (MVRV) Z-Score is an on-chain metric used to assess whether a cryptocurrency is overvalued or undervalued relative to its historical trends. It compares the market value (the total market capitalization) with the realized value (the total value based on the last movement of coins on-chain). The MVRV Z-Score takes this ratio and adjusts it by comparing the deviation from its historical mean and standard deviation, allowing for a normalized indicator of market tops and bottoms.

How the MVRV Z-Score Works

1. Market Value (Market Cap):

   • The total value of the circulating supply of a cryptocurrency.

   Market Cap=Price×Circulating Supply\text{Market Cap} = \text{Price} \times \text{Circulating Supply}Market Cap=Price×Circulating Supply

2. Realized Value (Realized Cap):

   • The value of coins based on the price at the time they last moved on-chain. It provides a more accurate representation of a coin’s market value by filtering out dormant coins.

3. MVRV Ratio:

   MVRV=Market ValueRealized Value\text{MVRV} = \frac{\text{Market Value}}{\text{Realized Value}}MVRV=Realized ValueMarket Value​

   • If MVRV > 1, it means that the market value exceeds the realized value, potentially indicating overvaluation.

   • If MVRV < 1, it suggests that the market is undervalued.

4. MVRV Z-Score:

   • To normalize the MVRV ratio, the Z-Score compares how far the current MVRV is from the historical mean, relative to its standard deviation: MVRV Z-Score=(MVRV Ratio−Mean MVRV Ratio)Standard Deviation of MVRV Ratio\text{MVRV Z-Score} = \frac{(\text{MVRV Ratio} - \text{Mean MVRV Ratio})}{\text{Standard Deviation of MVRV Ratio}}MVRV Z-Score=Standard Deviation of MVRV Ratio(MVRV Ratio−Mean MVRV Ratio)​

   • High Z-Score: Indicates the market may be overvalued.

   • Low Z-Score: Suggests the market is undervalued.

How to Interpret the MVRV Z-Score

• High MVRV Z-Score: Indicates that the market value is significantly higher than the realized value. This can be interpreted as the asset being overvalued, potentially signaling a market top or a period of profit-taking.

• Low MVRV Z-Score: Suggests that the market value is significantly below the realized value, implying that the asset may be undervalued. This often occurs near market bottoms and can signal potential buying opportunities.

Data Needed to Build the MVRV Z-Score Chart

1. Market Value (Market Cap):

   • Data on the total market value of the cryptocurrency at specific time intervals (e.g., daily).

2. Realized Value (Realized Cap):

   • The total realized capitalization of the cryptocurrency based on its last on-chain movement.

3. MVRV Ratio:

   • Calculated as the market value divided by the realized value for each time interval.

4. Mean MVRV Ratio and Standard Deviation:

   • These are used to calculate the Z-Score by normalizing the MVRV Ratio against its historical average and volatility.

Conclusion

The MVRV Z-Score is an essential tool for assessing the current state of a cryptocurrency's valuation relative to its historical trends. It helps traders and investors identify market tops and bottoms by comparing the current MVRV ratio to its historical mean. By using this, users can track the MVRV Z-Score in real-time, empowering them to make more informed decisions in the dynamic cryptocurrency market.