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On-Chain Indicator MVRV Signals a Bitcoin Bull Market Ahead

3 mins
Updated by Ali Martinez
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In Brief

  • The MVRV Z-Score indicator is back above 0 and heading for a bullish retest of the oversold area.
  • This is considered a rare signal that could suggest the start of a cryptocurrency bull market.
  • Historically, buying Bitcoin during this period has been very profitable.
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The crypto market is always in a state of flux, with prices soaring and plummeting regularly. However, a recent development may signal the start of a long-term bull market for Bitcoin and altcoins.

An important on-chain Bitcoin indicator, the MVRV, has broken out of the oversold territory, and historically, this event has signaled the beginning of a bull market.

Understanding the MVRV and How it Works

MVRV stands for Market Value to Realized Value ratio, a long-term Bitcoin indicator. It estimates when the price of BTC is below its so-called “fair value.” Its derivative, the MVRV Z-Score, is used to determine whether Bitcoin is overvalued or undervalued relative to its “fair value,” taking into account the standard deviation of all historical market capitalization data.

The MVRV Z-Score typically moves in three ranges, but it can occasionally move out of them during extreme bull or bear market conditions.

The green area between 0 and -0.5 is interpreted as the Bitcoin price being below “fair value”, the neutral range between 0 and 7 is considered the “fair value” range, and the red area between 7 and 9 is interpreted as the Bitcoin price being above “fair value.”

Bitcoin MVRV
Source: Glassnode

Historically, when the MVRV Z-Score was in the green area, it signaled a period of the Bitcoin price bottom. Conversely, when the indicator was in the red area, it signaled an impending peak and overbought period in the BTC market.

Currently, the MVRV has broken out of the buying area, which has corresponded with the accumulation of the BTC price in the past.

Bitcoin Exits Buy Zone

Cryptocurrency market analyst @CryptoNoob_1 recently tweeted a chart of MVRV, highlighting the drops below the 200-day average and pointing out that the recent January increases in the BTC market led to a breakout from this area. He said that “the price has always risen rapidly after this event.”

While this is a promising development, there have been periods of fakeouts in the past, where the indicator broke out but later returned to test it again.

Bitcoin BTC price
Source: Woobull

Still, with the BTC price breaking out of the long-term logarithmic resistance line (red) since its all-time high of $69,000 on November 10, 2021, and the MVRV Z-Score heading for a re-test of the oversold area (blue line), both events may occur simultaneously, providing strong evidence for the resumption of the crypto bull market.

Crypto Bull Market
Source: Glassnode

Skepticism Reigns

The crypto market has been experiencing an interesting dislocation as of late. On the one hand, some retail traders are skeptical that Bitcoin bottomed in November. On the other hand, options contracts are signaling a strong confidence that the bottom has indeed been reached.

This dichotomy has created a unique opportunity for investors who can make accurate predictions about the crypto market’s future. For those who believe that new lows are on the horizon, a great trade awaits.

One key indicator of this potential for a great trade is the delta for 15,000 BTC, priced at 0.14 and going into 2024, using December 23 as a proxy.

This delta is a measure of the change in the option’s price relative to a change in the underlying asset’s price. In this case, a low delta indicates a lower sensitivity of the option price to changes in the price of Bitcoin, implying a lower risk.

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Disclaimer

In line with the Trust Project guidelines, this price analysis article is for informational purposes only and should not be considered financial or investment advice. BeInCrypto is committed to accurate, unbiased reporting, but market conditions are subject to change without notice. Always conduct your own research and consult with a professional before making any financial decisions. Please note that our Terms and ConditionsPrivacy Policy, and Disclaimers have been updated.

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Jakub Dziadkowiec
PhD and an assistant professor at an international university in Lublin, Poland. Spent 10 years studying philosophy of nature and sport science. An author of 4 books and two dozens of scientific articles. Now, he is using his mind for the benefits of the cryptocommunity. Technical analysis enthusiast, Bitcoin warrior, and a strong supporter of the idea of decentralization. Duc in altum!
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