Today’s headlines:
- Bitcoin price continues to range just 1-2% below the $100,000 milestone.
- Howard Lutnick’s Cantor Fitzgerald in talks with Tether about Bitcoin lending project.
- Metaplanet secures license for Bitcoin Magazine Japan to drive adoption in Japan.
- Senator Cynthia Lummis proposes selling Federal Reserve gold to buy bitcoin.
After $BTC’s huge rally up towards $100,000, it has taken a well-deserved breather over the past few days. Failing to break above the big round number of $100,000 it is consolidating just underneath that key level.
$BTC is now up +46.6% over the past month.
Figure 1: Bitcoin price over the past 4 weeks.
Having finally broken out of the range that it was stuck in for 8 months, $BTC has been able to extend it’s past 12 months' gains, which now stand at a staggering +160.6%.
Figure 2: Bitcoin performance over the past 12 months.
The Big Story
Key Onchain Metric Makes A New High For This Cycle
One of the onchain metrics we are keeping a particularly close eye on during this bull run is the MVRV Z-Score.
It is very effective at highlighting market sentiment and behaviour as we move through different points of Bitcoin’s major cycles. Throughout Bitcoin’s history, it has correctly identified each cycle major low and major high. Impressive stuff.
You can see how it does this when the orange line either peaks into the red band or drops down into the lower green band. Each time corresponding with $BTC major cycle highs and lows.
Figure 3: MVRV Z-Score.
Before we explain how MVRV Z-Score works, we need to understand two key inputs into its calculations:
Bitcoin's Market Cap: Market capitalization for Bitcoin is calculated by multiplying the current price of Bitcoin by the total number of coins in circulation, providing a measure of the total market value of all bitcoins. Black line on the chart above.
Bitcoin's Realized Cap: Realized capitalization for Bitcoin is an alternative metric that multiplies each coin by the price at which it was last moved, instead of the current price. This shows us the average cost basis at which people’s bitcoins were acquired. Blue line on the chart above.
MVRV Z-Score is then calculated by taking the ratio of the difference between Bitcoin's market cap and realized cap, and dividing it by the standard deviation of all historical market cap data.
When the Z-Score is high, it suggests that Bitcoin's price is high compared to historical norms and may be overvalued, indicating a potential selling point; conversely, a low Z-Score suggests undervaluation, potentially signaling a buying opportunity.
The Z-Score is essentially highlighting points in the data where today’s market cap is significantly higher or lower than realized cap i.e. today’s value is much higher or lower than the average price that people bought their bitcoin at. If it’s too high, the market is probably getting frothy. If it’s too low then $BTC may be undervalued.
What the Latest Data Shows
With the latest price move up towards $100,000, MVRV Z-Score has now made a fresh high for this latest Bitcoin cycle.
The previous high was shortly after the launch of spot Bitcoin ETFs earlier this year. On March 11, 2024, the Z-Score peaked at 3.04, which also coincided with the price peak for Q1-Q3 this year at around $73,000.
The latest price move up towards $100,000 has now driven the MVRV Z-Score up to 3.29.
Figure 4: MVRV Z-Score.
While a higher score may be cause for concern that we are nearing the end of the cycle, we believe this is unlikely to be the case just yet.
Previous cycles have seen the MVRV Z-Score top out anywhere between a score of +7 and +10.
This shows that there is still likely to be plenty of upside potential as we move into 2025. Particularly as media attention will increase once Bitcoin does finally break above the big round number of $100,000 and we continue to see fresh flows via spot bitcoin ETFs as well as new retail interest entering.
The MVRV Z-Score chart is available to view for free here.
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The Bitcoin Magazine Pro team.