Dormancy Flow Z-Score

Definition ∞ Dormancy Flow Z-Score is an on-chain metric that assesses whether Bitcoin’s market valuation is overextended or undervalued relative to historical spending patterns. It compares the current dormancy flow to its historical average, expressed in standard deviations. A high Z-score suggests that long-term holders are spending their coins at an unusually high rate, potentially indicating a market top. A low Z-score implies reduced spending, often associated with market bottoms.
Context ∞ This metric is frequently cited in advanced cryptocurrency analysis to gauge market sentiment and identify potential turning points in Bitcoin’s price cycle. Discussions often involve its efficacy as a predictive tool, particularly in varying market conditions. Understanding the Dormancy Flow Z-Score provides context for discerning when long-term holders might be taking profits or accumulating assets.