Shiba Inu (SHIB), the popular meme coin, is showing signs of being undervalued, while Bitcoin (BTC), the leading cryptocurrency, might be headed for a correction, according to on-chain analytics firm Santiment.
This analysis is based on the MVRV Z-Score, an indicator that compares the market value of a cryptocurrency to its realized value, which represents the total cost basis of all tokens in circulation.
Understanding MVRV Z-Score
The market capitalization of a cryptocurrency reflects the total value of all outstanding coins at the current market price. Realized value, on the other hand, estimates the total amount of money investors have historically spent acquiring those coins.
The MVRV ratio simply divides market cap by realized value. A high MVRV suggests that, on average, investors are sitting on profits, potentially indicating a market ripe for selling. Conversely, a low MVRV implies investors are underwater, meaning they bought their coins at a higher price and might be less likely to sell at a loss.
The Z-Score Twist
The MVRV Z-Score takes the MVRV ratio a step further by factoring in historical volatility. It essentially shows how much the current MVRV deviates from its average value throughout history.
According to Santiment, a Z-Score below -1 suggests an undervalued asset, while a score above 1 indicates a potentially overvalued one.
Shiba Inu vs. Bitcoin: Different Territories
Santiment’s chart reveals that Shiba Inu’s MVRV Z-Score currently sits at -1.55, placing it firmly in the “underbought” zone. This implies that investors who bought SHIB, on average, are at a loss and may be less inclined to sell, potentially leading to a price increase.
Bitcoin, on the other hand, finds itself in a contrasting situation. Its MVRV Z-Score is above 1, suggesting the coin might be overvalued based on historical buying patterns. This could signal a potential price correction as investors who bought BTC at lower prices see an opportunity to take profits.
Important Caveats
It’s crucial to remember that the MVRV Z-Score is just one data point among many. Other factors, such as news events, regulations, and overall market sentiment, can also significantly influence cryptocurrency prices.
Therefore, while the MVRV Z-Score suggests Shiba Inu might be poised for a rally and Bitcoin could face a pullback, these are not guaranteed outcomes. Investors should always conduct thorough research and consider their risk tolerance before making any investment decisions.
