Market value Realized values ​​Bitcoin bands

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12 October 2021

Realized value

On September 23, 2018, at the Baltic Honeybadger conference in Riga, Latvia, Nic Carter introduced the concept of realized value (originally “realized cap”, but the two terms have since been used interchangeably) that he had developed in collaboration with Antoine Le Calvez. . By leveraging the Bitcoin Time Chain, which holds a public record of all Bitcoin transactions ever made, Realized Value seeks to quantify the total value in United States Dollars (USD) of all bitcoins that were in existence at the last time these coins were released. been moved on the chain. Figure 1 displays this realized value (blue) next to the total bitcoin market value (black), which is the total market value of all bitcoins that exist at all times.

Figure 1: Bitcoin’s Market Value (MV) and Realized Value (RV).

Assuming that most chain transactions represent an actual transfer of value (for example, buying or selling bitcoin for fiat currency or using it to consume goods or services), then the realized value represents the basis of aggregate cost of each existing bitcoin. . As can be seen in Figure 1, this aggregate cost base seems well suited for estimating the lowest prices in bearish market conditions, as it is apparently unlikely that most bitcoin holders will realize losses on a asset which they believe has a lot of long-term potential. .

Z-Score from Market to Realized Value (MVRV)

This new concept of realized value was a breakthrough in the emerging field of chain analysis. On October 2, 2018, David Puell and Murad Mahmudov reiterated the work of Carter and Calvez by introducing the market value / realized value (MVRV) ratio. The MVRV ratio is calculated by dividing the total market value of bitcoin (MV) by its realized value (RV). Therefore, the metric represents the extent to which the current bitcoin market valuation is overstretched beyond (values> 1) or indeed at a discount (values ​​<1) from the holders' aggregate cost base.

A week later, on October 9, 2018, Awe and Wonder took the MVRV report further by creating a metric called MVRV z-Score. The MVRV z-score first calculates the difference between bitcoin’s total market value and its realized value, and then divides it by the standard deviation of the market valuation – a common statistical procedure called “normalization.” MVRV z-scores therefore represent the number of standard deviations by which each valuation of the bitcoin market is increased or decreased relative to its realized value. While the methodology behind this oscillator may be difficult for some to interpret, viewing this metric actually makes it much easier to compare how relative bitcoin market valuations compare to those in previous bitcoin market cycles.

Figure 2 displays the MVRV z-score over time. The colored horizontal lines represent the MVRV z scores of 0 (blue), 2 (green), 4 (yellow), 6 (orange), 8 (red), and 10 (brown).

Figure 2: The z score of MVRV bitcoin.

MVRV bands

Based on the same methodology that was used to create the Bitcoin Price Temperature Bands (BPT) on December 15, 2020, this article iterates over the MVRV z score by visualizing the price levels of the six colored MVRV z scores that were set. prominently displayed in Figure 2 on a regular (logarithmic) bitcoin price chart in Figure 3. These “MVRV bands” represent the price bitcoin would have if it reached these MVRV z score levels.

Figure 3: The price of bitcoin and the MVRV bands.

Because the MVRV z-score divides the difference between the market value of bitcoin and the realized value by the standard deviation (always) of the market price, the metric is sensitive to changes in the volatility of the price of bitcoin. During times when the market price of bitcoin has risen rapidly, its all-time standard deviation also increases, causing the displayed bands to slope upward, thus suggesting that higher values ​​are needed to achieve these MVRV z score levels, and vice versa during market downturns. This dynamic is best seen in Figure 4, which zooms in on the last five years of data.

Figure 4: The price of bitcoin and MVRV bands over the past five years.

The metrics and visualizations that were introduced in this article are free to be reproduced, used, and developed by others. At the time of writing, there is no web version of the metric available yet, but the R code is available on GitHub.

Disclaimer: This article has been written for educational and entertainment purposes only and should not be taken as investment advice.

This is a guest article by Dilution-proof. The opinions expressed are entirely theirs and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

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