Predict peak Bitcoin price like a pro — with the MVRV-Z Score
How useful is MVRV-Z at predicting the top? Very.
Where to get it:
What is the MVRV chart?
The MVRV is simpler than it sounds. The “RV” — Realised Value - is simply the cost price of every Bitcoin which exists, divided by the number in existence. So, it’s the average price paid for all Bitcoin.
The “MV” — Market Value — is the current price of one Bitcoin.
To get the MVRV score you divide one by the other.
The higher Market Price above the Realised Price, the more “frothy” the current price is. The more frothy, the more likely it is to crash back down to earth.
That’s about it! MVRV is a really useful and simple indicator.
Is there hype?
Another way of looking at MVRV it is to say that the higher above Realised Price the Market Price gets, the more “hype” is included in the price.
So, if the Market price is £50,000 (or $50,000) and the Realised Price is well below this at, say, £30,000 ($30,000) then that is clearly “overbought” — ie the price is very full, and it’s not a good time to buy.
So why add the “Z” to MVRV-Z?
The MVRV-Z Score involves an extra calculation* that immediately makes the indicator much more practical and visual. It adds a red zone for “caution” and a green zone for “good time to buy.” You can also call the red zone “overbought”, and the green zone “oversold”.
|(*OK — if you press me, the Z Score calculation is this: Market Cap — Realised Cap)/Market Cap)
What can we use the MVRV-Z Score for?
1. Look for MVRV-Z plot line entering the red zone for more than 1 day — because the price peak will be close to when it leaves the red zone.
2. The MVRV-Z plot line called the top exactly as it left the red zone in 2013 (x2) and 2017. In 2021 it called it a little early and missed it by 9.5%. That is still very good — especially for such a volatile asset as Bitcoin.
3. When the MVRV-Z plot line is in the green zone it’s always been a good time to buy, giving excellent returns.
A slight caution
1. Glassnode calculates the MVRV-Z scores to be slightly higher at the top than LookIntoBitcoin and other people. This means that the 2021 figure falls into the red zone, whereas for other versions, MVRV-Z only just touches the red zone. I’m OK with this, especially as April 2021 was a bit of an anomalous top for several reasons — so I don’t expect that type of top to be repeated. Still, bear in mind that the MVRV-Z line might not plunge far into the red zone - it might only touch it, again.
2. That’s the only caution I can think of. I think this is a really useful indicator — for tops especially. I will be using it to judge if the peak will come early — in 2024 instead of 2025 and to judge future peaks. So far, it’s been really accurate. Let’s hope it continues to be so.
Summary
The MVRV-Z score has proven itself, so far, to be an extremely accurate way of calling the peak of the Bitcoin price cycle. It has been spot on three times and 9.5% low once (April 2021). I always reckon that if I can call the Bitcoin top within 20%, that is good going, so I’m very, very happy with what the MVRV-Z chart can offer me.
Of course, there is a proviso that what has happened in the past won’t necessarily happen in the future. But that’s part of the excitement of Bitcoin. It’s a unique asset designed to be run by a computer programme. It has been specially designed to be out of the reach of governments and companies. That gives people like you and me an unusually good chance to make good money from it. Tools like the MVRV-Z score can help us succeed.
(None of this is financial advice. Please, do your own research, and good luck.)
