Why a hidden math metric shows bitcoin may be getting too cheap for investors to ignore

After a massive selloff last week, one of bitcoin’s BTC$62,945.93 closely watched onchain metrics is approaching a threshold that has historically marked bear market bottoms.

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 dipping below zero (into the green zone, in 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 saw its first major crash. It happened again in 2014 and late 2018. Most recently, it fell 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 value – what the token is worth right now based on the current market price – from it’s realized price.

The second figure, widely considered close to fair value, is obtained by averaging the prices of every bitcoin since the last time it was transacted onchain.

When the market price is far above fair value, bitcoin is considered expensive relative to its own history. When the market price falls toward or below the fair value, bitcoin is cheap. The Z-Score takes the difference between those 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 the 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 boundary of the historically significant “green zone,” which begins at approximately 0 and extends slightly below zero.

In other words, it’s 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 might not be in just yet, as the behavior of wallet holders suggests there might still be a bit more selling needed for it to be truly 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, haven’t converged yet.

When these two data points close the gap, historically, a major cycle low forms. This was previously seen in 2015, 2019, and 2022.

However, currently, STH-MVRV stands at 0.84, while LTH-MVRV remains elevated at 1.29. Meaning 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 is impossible to time market bottoms, after the brutal selling last week that wiped hundreds of billions off crypto’s market value, conditions that have historically preceded recoveries are beginning to emerge.

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