On-chain data shows Bitcoin is currently retesting an important support level. Here’s where the next important line lies, should this level fail.
Bitcoin Is Currently Trading Around 1-Year MVRV Mean
In its latest weekly report, the on-chain analytics firm Glassnode has discussed about a Bitcoin pricing model that’s based on the Market Value to Realized Value (MVRV) Z-Score.
The MVRV Z-Score is an indicator that basically compares the market cap of BTC with its realized cap. The metric differs from the popular MVRV Ratio in that it also applies a standard deviation test to pull out the extremes from the data.
More formally, the indicator is calculated as,
the ratio between the difference of market cap and realized cap, and the standard deviation of market cap, i.e. (market cap – realized cap) / std(market cap)
The “realized cap” here refers to a capitalization model for Bitcoin that calculates the asset’s total valuation by assuming that the ‘true’ value of any token in circulation is equal to the price at which it was last moved on the blockchain.
The last transaction of any token can be assumed to be the last price at which it changed hands, so the price at its time could be considered as its current cost basis. Thus, the realized cap is a sum of the cost basis of all coins on the network.
In this context, the MVRV Z-Score essentially tells us about how the value held by the investors (that is, the market cap) compares against the capital that they initially put in (the realized cap).
Now, here is the chart for the Bitcoin Pricing Bands model based on this metric shared by the analytics firm in the report:
As displayed in the above graph, the model consists of three lines related to the standard deviations (SDs) of the 1-year MVRV Z-Score. The lines being the metric’s mean, +1 SD, and -1 SD.
At present, the middle pricing band of the model is situated around $96,300. This is the same level that BTC has been falling back to as support during the recent market downturn.
As the report explains,
At the moment, price has found strong support near the Mean level. Should prices break lower, the -1σ may mark a key threshold for the bulls next major line of defensive support. Conversely, the +1σ level may act as resistance, as investors come into a meaningful amount of unrealized paper profit, and may seek to realize them into market strength.
The -1 SD support level stands at $80,100 right now, while the +1 SD resistance line is at $118,000. It now remains to be seen which of these this retest of the mean level would lead Bitcoin to.
BTC Price
At the time of writing, Bitcoin is trading around $97,400, down more than 2% over the last week.
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