Capriole Investments founder Charles Edwards has observed activity and metrics in the Bitcoin chain which can often provide signals for major market movements.
On Oct. 18, he tweeted a chart that depicts the MVRV z-score which uses blockchain analysis to identify periods where Bitcoin is extremely over or undervalued relative to its “fair value.”
MVRV predicts an upcoming bull run
The metric was created by Murad Mahmudov and David Puell by dividing market cap by realized cap to get a feel for when prices are below “fair value”. The z-score is a standard deviation test that pulls out the extremes in the data between market value and realized value.
The last time the MVRV’s z-score crossed 3 was in late 2020, just before BTC broke its previous high of $ 20,000 to hit a new $ 65,000 four months later.
It happened three times during the 2017 bull run that saw Bitcoin print several new all-time highs. This also happened in 2014, which saw another cycle high, and again in 2011, which saw another cycle high.
MVRV ratio highs have coincided with these cycle peaks on five previous occasions, so if it continues higher, another one could be on the cards in the next few months.
Stock-to-flow status
Another on-chain price prediction model is also on the right track, pointing to further gains. The stock-to-flow model measures the relationship between the production of supply and the current stock available, essentially calculating Bitcoin’s value through scarcity.
The idea behind the popular pricing model, “PlanB,” released an update on October 18 showing that prices had entered the “blue zone,” which is the middle band of the range. The model predicts an average price of around $100K for this cycle though actual prices could range way above or below that.
The analyst previously said that the pattern indicates that the second stage of this bull run has not yet fully materialized. Other popular strategists have also predicted that the real Bitcoin bubble hasn’t really started, as reported by CryptoPotato.
