The fundamental valuation of Bitcoin has contracted to historic lows: what this means for the market
The key on-chain indicator MVRV Z-Score for Bitcoin has closely approached zones that historically correspond to deep undervaluation of the asset. This signals that the excessive speculative premium accumulated during the current cycle has been almost completely washed out of the market.
What the MVRV Z-Score Shows
MVRV (Market Value to Realized Value) is one of the most fundamental tools for assessing Bitcoin's fair value. It compares two capitalizations: market capitalization (the current price of the entire supply) and realized capitalization (the average purchase price of each coin at its last movement on the network). When the market value significantly exceeds the realized value, the market is overheated and carries an increased risk of correction. Conversely, when these indicators converge, participant profitability declines, and risk resets.
The Z-Score adds statistical normalization to this: it measures how much the current divergence between the capitalizations deviates from the historical norm. This helps determine whether Bitcoin is trading at extreme levels relative to its own history.
Current Situation: Valuation Compression
Currently, the MVRV Z-Score has closely approached zones that previously coincided with deep market resets—for example, after the FTX collapse or during prolonged bearish trends. This means the speculative bubble that inflated in 2023–2024 has almost completely deflated. However, it is important to understand: this indicator does not predict an exact turning point. It only shows that the market has moved from a high-risk zone to a low-valuation zone.
The main question now is not whether the bottom is confirmed, but whether Bitcoin is forming a new valuation base after such a significant reset in profitability.
Funding Rates: First Signs of Optimism
Alongside the fundamental compression, an interesting signal is emerging in the derivatives market. Funding rates across all exchanges have returned to positive territory, even though Bitcoin's price continues to weaken in the $59,000–$60,000 range. This suggests that trader sentiment is beginning to shift: after a prolonged period of negative rates, market participants are once again opening long positions or, at the very least, pricing in a short-term bounce.
However, there is a downside here. When rates are positive but the price is not recovering, the market becomes more sensitive to volatility. If spot demand does not take the lead, new long positions could themselves become a source of pressure—if the price declines further, a wave of liquidations will follow.
My Analysis
Both signals—the MVRV Z-Score and funding rates—describe the same market but from different perspectives. The first shows that fundamentally, Bitcoin is already cheap and close to historical buying zones. The second indicates that short-term sentiment is starting to turn, but without confirmation from spot demand, this optimism may be premature. The market is feeling out a new base, but it remains in a phase of uncertainty, where each new impulse could be either the start of a rally or a trap for bulls.