🦾Bitcoin Pricing Model - Z Score

Bitcoin's Z-Score is a simple linear, multi-factor model that measures the financial health and economic stability of a company. The score is used to predict the probability of a firm going into bankruptcy within next 24 months or two fiscal years from the day stated on the accounting statements used to calculate it. Refer to the chart below

Key inferences -

1. The MVRV Z-score is a function of the difference between total market cap and realized market cap, divided by the standard deviation of the market cap. This shows by how many standard deviations the market value differs from the realized value.

2. It evaluates if Bitcoin is over or under-evaluated compared to its "normal" value.

3. This indicator shows if investors are currently making profits. Above 7, there is a high probability that the market is in a bubble about to burst. Below zero, the market is bleeding.

Pros and Cons of the MVRV Z-Score

This metric has both advantages and disadvantages. It can be very helpful for estimating Bitcoin's fair value, but it isn't foolproof.

Here are some pros to the MVRV Z-score that you should know about.

• The metric is very simple to calculate and analyze. At a glance, even casual crypto enthusiasts can see if Bitcoin is relatively overvalued or undervalued.

• MVRV Z-scores use months of past data, so they tend to be reliable for spotting big trends that will cause significant changes to the market. They can predict some trends with up to 94% reliability.

Keep in mind that there are also some potential cons to the MVRV Z-score.

• Since the score looks at all of Bitcoin's previous price history, previous values with lower prices might be weighted a bit unfairly. Some people believe that a score of as much as 1.0 might indicate that Bitcoin is undervalued.

• More people are becoming aware of this metric, so there tends to be movement when Bitcoin reaches a score of 6.9 — regardless of other market trends.