Technical take on bitcoin undervalued by on-chain metric and it may stay that way

Bitcoin is digital money that runs without any kind of centralized management, bank supervision, or government regulation. Instead, it uses cryptography and peer-to-peer software. All bitcoin transactions are recorded on a public ledger, and copies of it are stored on servers all around the world. One of these servers, referred to as a node, can be installed by anyone with an extra computer. Instead of relying on a single point of trust, such as a bank, these nodes cryptographically agree on who is in possession of whose coins. Every transaction is shared across nodes and broadcast to the network in a public manner. These transactions are gathered by miners into a collection called a block, which is added permanently to the blockchain, about every 10 minutes. This is the official bitcoin account book.

A crucial indicator that is based on data taken from the blockchain shows that Bitcoin is as undervalued as it has been since 2020. An analytical tool called the “MVRV Z-Score” is used to determine whether bitcoin (BTC) is currently looking pricey or cheap according to its historical performance. The indicator calculates the difference between an asset’s “realized cap” and market capitalization, which is calculated by multiplying the number of tokens outstanding by the price at which bitcoin last moved over the blockchain. The market capitalization of the asset’s standard deviation is then applied to that difference. It potentially identifies places where an asset is overpriced or undervalued, similar to other technical indicators.

The cryptocurrency has been trading at historically low levels since June, according to the MVRV Z-score for Bitcoin. BTC’s MVRV Z-Score last attained this level in March 2020. In February 2021, when the Z-Score suggested that BTC was overbought, or trading at a level beyond its inherent or fair worth, the price eventually rose from $5,200 to $60,000 per unit. Similar circumstances occurred between November 2018 and April 2019, when bitcoin’s price remained depressed; during the next two months, it soared from $4,200 to $13,000.

When using the analysis, it is important to take into account how the current economic situation differs from some of the earlier undervalued eras. The U.S. economy grew at an average rate of 2.2% from March 2020 to February 2021, despite the profound disruptions caused by the economy’s on-again, off-again struggles with the coronavirus epidemic. The COVID-19 shutdowns were undoubtedly the cause of the extremes of a 30% shrinkage and a 35% increase.

The economy has already recorded two quarters with negative GDP. A report due out next week is expected to show positive 2% GDP growth in the third quarter, according to predictions. In order to determine whether previous advances in BTC are reasonable in the current economic climate, it is important to compare past GDP to periods when BTC was undervalued.

It’s also important to analyze the yield curves for U.S. government bonds at their current level. Whereas in 2018 and 2019, the spread between the 10-year and two-year Treasury bonds was positive, it is presently significantly negative and has been since July. Prior economic recessions have been preceded by the yield-curve inversion, which effectively implies that short-term debt is riskier than longer-term debt. Macroeconomic overhangs suggest that BTC may remain undervalued for longer than in the past, despite the fact that the asset’s MVRV Z-score indicates that it is.