Definition ∞ Valuation extremes refer to periods when an asset’s price is significantly overvalued or undervalued. These market conditions occur when the price of a digital asset deviates substantially from its intrinsic or fundamental value, as assessed by various analytical models or historical data. Periods of extreme overvaluation typically coincide with speculative bubbles and irrational exuberance, while extreme undervaluation often accompanies market capitulation and widespread pessimism. Identifying these extremes is a critical aspect of cyclical analysis, signaling potential turning points in an asset’s price trajectory.
Context ∞ Crypto news often highlights valuation extremes using metrics like MVRV Z-Score or Puell Multiple to suggest whether the market is at a top or bottom. A key discussion involves discerning whether current market conditions represent a true extreme or a new normal driven by evolving adoption and utility. Understanding these points helps investors gauge market sentiment and assess the long-term sustainability of current price levels for digital assets.
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