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.
Calculation Methodology
1. Market Value (Market Cap)
The total value of the circulating supply of a cryptocurrency
Formula: Market Cap = Price × Circulating Supply
Data source: CoinGecko API
2. Realized Value Calculation
The system uses a volume-weighted approach to calculate the realized value:
cumulativeVolume += volume;
cumulativeVolumePrice += volume * price;
realizedValue = cumulativeVolumePrice / cumulativeVolume;3. MVRV Ratio
Formula: MVRV = Market Value / Realized Value
The ratio indicates:
MVRV > 1: Market value exceeds realized value (potential overvaluation)
MVRV < 1: Market value below realized value (potential undervaluation)
Trading Signals
The system generates trading signals based on predefined MVRV Z-Score thresholds:
Buy Signal (B)
Triggered when MVRV Z-Score ≤ -0.5
Indicates potential buying opportunity
Signal generated when crossing from above to below threshold
Sell Signal (S)
Triggered when MVRV Z-Score ≥ 2.0
Indicates potential selling opportunity
Signal generated when crossing from below to above threshold
Neutral Zone
MVRV Z-Score between -0.5 and 2.0
No trading signals generated
Data Needed to Build the MVRV Z-Score Chart
Market Value (Market Cap):
Data on the total market value of the cryptocurrency at specific time intervals (e.g., daily).
Realized Value (Realized Cap):
The total realized capitalization of the cryptocurrency based on its last on-chain movement.
MVRV Ratio:
Calculated as the market value divided by the realized value for each time interval.
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.
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