Definition ∞ MVRV Z-Score analysis is a metric assessing a digital asset’s over or undervaluation based on market and realized capitalization. This on-chain valuation tool compares a cryptocurrency’s market capitalization to its realized capitalization, normalized by a standard deviation, to identify periods where the asset is significantly overvalued or undervalued relative to its historical average. Realized capitalization calculates the value of each coin at the price it last moved on-chain, providing a cost basis for the network. A high MVRV Z-Score typically indicates market tops, while a low score suggests market bottoms, signaling potential buying or selling opportunities.
Context ∞ Crypto news frequently references MVRV Z-Score analysis to provide a macro-level view of market cycles and investor sentiment, particularly for Bitcoin. A key debate centers on the predictive power of this metric in new market conditions, as its historical effectiveness is well-documented. Continued application of this and similar on-chain indicators helps market participants gauge whether current prices represent valuation extremes or a more balanced market state.
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