The bulls sharpen their horns

If you are a long-time cryptocurrency investor, you may have experienced what turns out to be bloody battles between the bulls and the bears. Although in the long run, the bulls have managed to gain the upper hand, every now and then the bears counterattack causing a real bloodbath which weakens the bulls war plan. In this case, the bulls seem to be gaining ground, if we analyze the on-chain data. Let's take a look at a resurgent metric that has in the past preceded bullish rallies.

Yesterday we analyzed the relationship between market cap and realized cap on the Bitcoin network (link for latecomers: here). Now that we are experts in the field, we can go further to understand the behavior on the network. The MVRV-Z Score ratio is used to assess whether an asset is overvalued or undervalued compared to its "fair value" by measuring the difference between the market value and the realized value. I'll let you take a look at the chart.

MVRV-Z Score Bitcoin (2010-2021)
Source: Glassnode

When the market cap is much higher than the realized cap, this has caused a sharp spike in the ratio, shown in the red area of the chart, while the opposite has caused a dip in the ratio, shown in the green area.

Thus we can observe the evolution of the gap between the market value and the realized value. To push the point a little further, let's draw a line on the current level of the ratio.

MVRV-Z Score Bitcoin (2009-2021)
Source: Glassnode

The market value of Bitcoin tends to move away from the current realized value. In the past, crossing this level has proven to be a starting point for bull frenzy. 2011, 2013, 2017, early 2021, the MRVR Z-Score has proven to be a relevant ally in observing the pre-euphoria phase. On the other hand, as you are aware, a metric alone cannot validate a trend for sure. To finish and complete this ratio, let's observe the trend of the "old coins" Bitcoin, in other words, the long-term holders of digital gold.

90 Coin Days Destroyed / Bitcoin price USD (2009-2021)
Source: Glassnode

The "90 Coin Days Destroyed" allows the focus to be on the time the coins are held more than the value spent. Behind this obscure name, we can observe the behavior of the "smart money" by counting the number of coin days (explanatory article of the CDD-90: here).

We notice that old coins are at their lowest. In other words, the old actors of the market have not spent their tokens recently to make a profit. Would the smart money be confident at the current price? Is it right? Is it hoping to turn a profit soon? Even if we are far from the peaks recorded during the last bull run on the two metrics studied, nothing assures us that this scenario will be repeated in the future. On the other hand, on-chain data allows us to closely observe the behavior of digital currency market players and its correlation with their price. And in this case, currently the metrics are favorable to the bulls in a context of digital assets in full turmoil with the arrival today of a Bitcoin ETF on the market.

MVRV Z-Score (blue curve)
CDD-90 (purple curve)
Bitcoin price (yellow curve)
(2010-2021)
Source: Glassnode