Bybit Learn

Indicators

MVRV Z-score is a great way to calculate fair value of cryptocurrencies. Learn how to determine their actual value with this easy-to-understand metric.

, one of the things they most frequently discuss is, "What are bitcoins worth?" Since Bitcoin's value is mostly determined by supply and demand, there's no easy answer to this question. To find a Bitcoin's fair value, you have to carefully consider several factors. An MVRV Z-score can make all these calculations a little simpler. How do MVRV Z-scores work? Explore our guide to learn what an MVRV Z-score is, and how you can use it to assess Bitcoin’s value.

MVRV Z-score is a helpful metric that provides insight into the value of any cryptocurrency but is more typically used for Bitcoin. MVRV stands for "market value to realized value," and it shows whether the cryptocurrency is overvalued or undervalued at the moment.

This metric has its roots in the MVRV ratio, which 

 in 2018. The original MVRV ratio simply compared the market value and realized value for Bitcoin. It was a great way of following spur-of-the-moment price trends, but it didn't provide much insight into Bitcoin's fair value.

The MVRV Z-score is a modification of Mahmudov and Puell's original metric. First generated by 

 in late 2018, the MVRV Z-score metric adds the mathematical concept of Z-scores to the MVRV metric. A 

 the number of standard deviations that go above or below the mean value. However, an MVRV Z-score substitutes the realized value of Bitcoin for the mean value.

There are plenty of sites that show MVRV Z-score charts, so the simplest way to calculate an MVRV Z-score is to look it up. However, it's worth taking the time to learn how to calculate it yourself. Knowing how to calculate the MVRV Z-score of Bitcoin provides a lot of insight into how the concept works.

The basic formula for the MVRV Z-score simply subtracts the realized value of Bitcoin from its market value, and divides that total by the standard deviation. Here's how to calculate the MVRV Z-score:

Since MVRV Z-score was developed, it's been a critical part of Bitcoin investing. Why is the MVRV Z-score so useful? It helps to identify market trends and provide a more accurate picture of Bitcoin's fair value.

Seeing the current MVRV Z-score provides some insight into whether Bitcoin is overpriced or underpriced. Any time the score is greater than 6.9, Bitcoin is most likely overvalued. Many charts will show this overvalued zone as a red or pink "danger zone" that the MVRV Z-score line occasionally crosses into. When the score is below 0.1, Bitcoin is undervalued relative to Bitcoin's fair value. Charts will often show this as a green "safety zone" that indicates it's a good idea to buy Bitcoin.

The MVRV Z-score is especially useful for identifying momentum. People look at market trends to determine what Bitcoin is worth. If Bitcoin's fair value jumps or drops drastically, it gains attention — and causes even more drastic shifts. The MVRV Z-score shows you this momentum, and its data can often let you know when the market is about to shift. Historically, any time the weekly close has an MVRV Z-score of ﹥ 5, there’s a 94.36% chance of reversal.

This metric has both advantages and disadvantages. It can be very helpful for estimating Bitcoin's fair value, but it isn't foolproof.

Here are some pros to the MVRV Z-score that you should know about.

Keep in mind that there are also some potential cons to the MVRV Z-score.

Is MVRV Z-Score Reliable as a Bitcoin Price Predictor?

What is Bitcoin worth? As just mentioned, the MVRV Z-score won't necessarily tell you the precise value of a bitcoin. Like any other pricing indicator, there are some slight variations in the MVRV Z-score’s reliability. You can't simply sell the instant the score hits 6.9, because there’s no guarantee Bitcoin prices won't rise higher. However, it does provide a very accurate estimate of a Bitcoin's fair value.

In addition to helping you figure out Bitcoin's fair value, the score is fairly reliable at identifying potential market shifts. If you take a look at the metric's past, it was able to accurately predict the pricing drops of April 2013, December 2013 and December 2018 one to two weeks before the market crashed.

, an MVRV Z-score provides a little extra data. In addition to confirming whether a cryptocurrency is overvalued or undervalued, it also shows by how much. The more drastic peaks of a Z-score give you some additional insight into how the market is moving, so you can better guess what Bitcoin's (in this case) fair value will be in the future. Despite including extra detail, this score remains fairly simple to use.

As you can see, the MVRV Z-score is very useful. It's not an absolute guarantee, but it is very useful for seeing whether Bitcoin's fair value might be a little higher or lower than the current market value. Like any other crypto metric, this score works best when you combine it with other data to get a look at the big picture. 

All in all, while indicators like MVRV Z-score might offer some insight into the fair value of a cryptocurrency, they must still be taken with a pinch of salt. With macroeconomic factors like government regulations and inflation in play, any cryptocurrency’s price can become extremely volatile, rendering these indicators and charts ineffective.

MVRV Z-Score: Learn What Bitcoins Are Worth Relative to Their Fair Value

Get your daily dose of crypto and trading info