After a massive selloff last week, one of the bitcoins closely watched onchain metrics are approaching a threshold that has historically marked the bottom of the bear market.
The metric is called the market value-to-realized value (MVRV) Z-Score. Every major bitcoin cycle bottom has coincided with the Z-Score touching or briefly falling below zero (into the green zone of the chart).
And right now it is knocking on the door of the zone that has coincided with the lowest point of previous bear markets. It happened in 2011-2012 when bitcoin experienced its first major crash. It happened again in 2014 and the end of 2018. It last dipped below zero in the second half of 2022, marking a price bottom that paved the way for a three-year bull run.
What is the MVRV Z-Score
The metric compares the deviation of bitcoin’s market cap – what the token is worth right now based on the current market price – from its realized price.
The second figure, widely considered close to fair value, is obtained by averaging the prices of each bitcoin since the last time it was traded on the chain.
When the market price is far above fair value, bitcoin is considered expensive relative to its own history. When the market price falls towards or below the fair value, bitcoin is cheap. The Z-Score takes the difference between these two numbers and measures how extreme it is statistically.
The result is a single line that cuts through the noise of day-to-day price action and shows where price is relative to the broader market cycle. A high Z-score means the market is running hot, and a low or below zero score means the opposite.
According to BitBo, the Z-Score is currently at 0.24, just above the upper limit of the historically significant “green zone,” which begins at approximately 0 and extends slightly below zero.
In other words, it is very close to the “accumulation” zone. To be clear, this is not a price level, but only a measure of how stretched or compressed bitcoin’s market value is relative to its realized value.
Absolute bottom?
However, the bottom may not be in yet, as wallet holders’ behavior suggests that a bit more selling is still needed for it to truly be in.
Onchain data suggests that Long-Term Holder MVRV (LTH-MVRV), which measures the profitability of coins held for at least 155 days, and Short-Term Holder MVRV (STH-MVRV), which focuses on coins held for less than 155 days, have not yet converged.
When these two data points close the gap, a large cycle low is historically formed. This has previously been seen in 2015, 2019 and 2022.
However, currently STH-MVRV stands at 0.84 while LTH-MVRV remains elevated at 1.29. This means that long-term holders are still sitting on relatively large unrealized profits, indicating that further downside in bitcoin may be required before a typical bear market bottom is established.
While it’s impossible to time market bottoms, after last week’s brutal selloff that wiped out hundreds of billions of crypto’s market cap, conditions that have historically preceded recoveries are beginning to emerge.
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