The MVRV-Z Score (Market Value to Realized Value-Z Score) is a metric used to analyze how valuable Bitcoin and other crypto assets are relative to their realized value.

The MVRV-Z Score is an indicator that measures the relationship between market cap and realized cap, helping to understand periods of overbought or oversold assets.

How to Calculate?

The MVRV-Z Score formula is the difference between market capitalization and realized value divided by the standard deviation of market capitalization.

The MVRV-Z Score consists of two key components:

Market Value: Represents the market value of an asset. For Bitcoin, this market value is calculated by multiplying the current circulating supply by the current price.

Realized Value: Represents the realized value of an asset. Realized value is calculated by multiplying each unit of Bitcoin by the price at the last time it moved. Realized value is based on the average cost of Bitcoin's investor base.

MVRV-Z Score calculates the relationship between market value and realized value using standard deviation. The Z-Score measures how far away a value is from the average value and, in this case, shows how abnormal the relationship between Bitcoin's market value and realized value is.

The MVRV-Z Score can take positive or negative values. A positive Z-Score indicates that the market value is higher than the realized value and the asset may be overvalued. A negative Z-Score indicates that the market value is lower than the realized value and the asset may be undervalued or undervalued.

The MVRV-Z Score may not provide clear results when used as a stand-alone metric and it is important to consider it in combination with other analysis tools and factors.

0, 2, 4, 6 and above are critical levels for MVRV - Z Score. These levels can be interpreted differently depending on the direction of the market.

Bullish Period:

Above level 0: Bitcoin starts to gain value. Persistence above this level could signal a long bullish period for Bitcoin.

Level 2: Bitcoin is getting more and more valuable. Level 2 can work as resistance on the upside and support on the downside. When historical data is analyzed, persistence above this level results in an increase in Bitcoin price.

4 level: Bitcoin's value continues to increase. When historical data is analyzed, it is seen that persistence above this level initiates the market peak process.

6 level and above: It can be interpreted as levels where Bitcoin is considered highly valuable or even above its value. When historical data is analyzed, values of 6 and above coincide with the market peak and then large declines in Bitcoin price can be seen.

Bearish Period:

Level 6: It can be interpreted as the level where Bitcoin starts to lose value and moves away from the market peak. The loss of this level may also signal a decline in the Bitcoin price.

Level 4: The 4 level can be an important support for Bitcoin, but the loss of this level can also mean a decline.

2 level: As Bitcoin continues to lose value, the depth of the declines may increase with the break of this level.

0 level and below: Bitcoin is well below its value. These levels can be seen as a very strong buying opportunity for Bitcoin.

In the Glassnode graphic above, 0 critical level and below is defined as green area. 6 critical level and above is defined as a red area.

In the Glassnode chart above, MVRV-Z Score is in the green area. Since these levels are considered well below their value, they can be considered as a trade opportunity.

You can start creating a strategy by selecting the "MVRV-Z Score" indicator from the list. An example strategy is shown in the image below. You can use the MVRV-Z Score indicator to create a strategy after doing your own research.

This is how the rules for buying when the MVRV-Z Score value breaks 0.1 to the upside and selling with various Take Profit and Trailing Stop values can be determined.

MVRV-Z Score, a combination of strategy with various indicators calculated with BTC values

Backtest Results:

You can also set trend direction with MVRV-Z Score and create trading conditions with classic indicators.

You can click on the menu link to create and backtest these strategies yourself.

WARNING: The entry and exit strategies in the images are written for educational purposes to explain how indicators work. It does not guarantee any profit.

When creating an algorithmic trading strategy, a rule set is usually created by connecting more than one indicator.