Bitcoin On-Chain Metrics

Bitcoin's public blockchain records every transaction, creating a treasure trove of market intelligence that anyone can learn to read. Think of it like reading the financial statements of the entire Bitcoin network - you can see when people are buying, selling, panicking, or getting greedy.

This guide covers the most powerful Bitcoin indicators used in professional trading, explained in simple terms so you can start using them immediately.

Start Here

If you're new to blockchain concepts, begin with our foundational guide to understand how Bitcoin's unique transaction system creates these valuable market signals.

MVRV Ratio - The Market's Truth Detector

Understanding Market Value vs Realized Value

What It Shows: MVRV reveals whether Bitcoin is trading above or below what people actually paid for it. Think of it as comparing the current market price to the average purchase price of all Bitcoin holders.

The Simple Concept:

• Market Value = What Bitcoin is worth right now (current price × total supply)
• Realized Value = What people actually paid for their Bitcoin (the average cost basis of all holders)
• MVRV Ratio = Current value divided by what people paid

Why This Matters: When Bitcoin trades below what most people paid for it (MVRV below 1.0), it often signals a major buying opportunity. When it trades far above average cost basis (MVRV above 3.7), it historically marks market tops.

Real-World Example: Imagine if the average person bought Bitcoin at $30,000, but it's currently trading at $20,000. The MVRV would be below 1.0, suggesting most holders are underwater and weak hands have likely already sold - often a great time to buy.

How to Read MVRV Signals:

Strong Buy Signals (MVRV below 1.0):

• Bitcoin trading below average cost basis
• Most holders are losing money
• Weak hands have likely capitulated
• Historically excellent accumulation zones

Extreme Caution (MVRV above 3.7):

• Bitcoin trading far above what people paid
• Massive unrealized profits in the system
• High probability of profit-taking
• Historically marks major market tops

Fair Value Range (MVRV 1.0 - 2.5):

• Balanced between profits and losses
• Normal market conditions
• Neither extreme greed nor fear

Trading Zones for the 3-Tiered Strategy:

• Maximum Buying (MVRV below 0.8): Extreme undervaluation
• Accumulation Zone (MVRV 0.8 - 1.2): Good buying opportunities
• Hold Zone (MVRV 1.2 - 3.0): Fair value, maintain positions
• Distribution Zone (MVRV above 3.0): Consider taking profits

MVRV Z-Score - The Enhanced Version

What It Adds: The Z-Score version smooths out MVRV by accounting for how extreme the current reading is compared to historical patterns. It's like adding context to the basic MVRV reading.

How to Interpret Z-Score Readings:

Extreme Buy Territory (Z-Score below -1.5):

• Bitcoin is extremely undervalued historically
• Major accumulation opportunity
• These readings are rare but incredibly powerful

Buy Zone (Z-Score -1.5 to 0):

• Below average valuation
• Good accumulation territory
• Risk-reward favors buyers

Neutral Territory (Z-Score 0 to 6):

• Normal market conditions
• Neither extreme fear nor greed
• Hold existing positions

Sell Zone (Z-Score above 6):

• Extreme overvaluation
• High probability of correction
• Time to consider profit-taking

Historical Performance:

• 2017 Peak: Z-Score hit 8.9 right before the crash
• 2021 Peaks: Multiple readings above 7 marked local tops
• Bear Market Bottoms: Consistently below -1.0, perfect buying opportunities

Puell Multiple - The Miner Profitability Gauge

Understanding Mining Economics

What It Shows: The Puell Multiple reveals whether Bitcoin miners are making unusually high or low profits compared to their historical average. Since miners are major sellers of Bitcoin, their financial health directly impacts market supply and price.

The Simple Concept: Think of Bitcoin miners as the "producers" in the Bitcoin economy. They earn Bitcoin by securing the network, but they have real-world expenses (electricity, equipment, staff). When their profits are extremely high, they tend to sell more Bitcoin. When profits are extremely low, only the most efficient miners survive.

Why Miner Behavior Matters:

• Miners receive roughly 900 new Bitcoin daily (as of 2024)
• They're natural sellers since they need to pay expenses in dollars
• When miners are stressed, selling pressure decreases
• When miners are flush with profits, selling pressure increases

How to Read Puell Multiple Signals:

Extreme Profit Zone (Above 4.0):

• Miners earning far above normal profits
• High likelihood of increased selling pressure
• Often coincides with market tops
• Historical signal to consider taking profits
• Warning: Miners getting rich usually means prices are peaking

Miner Stress Zone (Below 0.5):

• Miners under severe financial pressure
• Weak miners forced to shut down operations
• Reduced selling pressure as inefficient miners exit
• Often marks excellent accumulation opportunities
• Opportunity: Miner capitulation often precedes price bottoms

Healthy Range (0.5 - 4.0):

• Sustainable mining economics
• Balanced supply and demand from miners
• Normal market conditions
• Neither extreme greed nor desperation

Real-World Examples:

2017 Bull Market Peak:

• Puell Multiple hit 6.9 - miners were making extraordinary profits
• Massive selling pressure from miners taking profits
• Market topped shortly after this extreme reading

2020 COVID Crash:

• Puell Multiple dropped to 0.3 - miners in severe distress
• Many inefficient miners shut down completely
• Created perfect buying opportunity as selling pressure evaporated

2021 Bull Run:

• Multiple peaks above 4.0 throughout the year
• Each peak coincided with local price tops
• Miners consistently taking profits at high levels

SOPR - The Profit and Loss Tracker

Understanding Market Psychology Through Transactions

What It Shows: SOPR (Spent Output Profit Ratio) reveals whether people are selling their Bitcoin for a profit or a loss. It's like having a window into the collective psychology of all Bitcoin sellers at any given moment.

The Simple Concept: Every time someone sells Bitcoin, we can see whether they made money or lost money on that transaction. SOPR tracks this across all Bitcoin transactions and tells us the overall sentiment:

• SOPR above 1.0 = People are selling for profits on average
• SOPR below 1.0 = People are selling at losses on average
• SOPR at 1.0 = Break-even point

Why This Matters: Human psychology drives markets. When people are forced to sell at losses, it often marks market bottoms. When everyone is taking profits, it often signals market tops. SOPR gives us a real-time reading of this psychology.

How to Read SOPR Signals:

Strong Profit Taking (SOPR above 1.05):

• Most sellers are making good profits
• Greed is likely driving the market
• High probability of price corrections ahead
• Warning sign: When everyone's making money, be cautious

Capitulation Zone (SOPR below 0.95):

• People are selling at significant losses
• Fear and desperation driving sales
• Weak hands being forced out
• Opportunity: Pain often creates the best buying chances

Equilibrium (SOPR 0.95 - 1.05):

• Balanced between profits and losses
• Market in transition phase
• Neither extreme greed nor fear
• Neutral: Wait for clearer signals

The SOPR Reset - A Key Market Pattern

What Happens During Bear Markets: During prolonged downtrends, something interesting happens - SOPR often gets "stuck" around 1.0. This creates a fascinating psychological dynamic:

The Psychology:

• People who bought higher refuse to sell at losses
• Supply becomes limited as holders wait for break-even
• Market finds temporary support at these levels
• Creates a battle between hope and reality

What This Means:

• Temporary bounces: Markets often rally from SOPR reset levels
• Final capitulation: Eventually, some holders give up and sell at losses
• Major bottoms: Extended periods below 1.0 often mark cycle lows

Market Cycle Patterns:

Bull Markets:

• SOPR consistently stays above 1.0
• People are generally profitable and confident
• Occasional dips below 1.0 create buying opportunities
• Sustained readings above 1.05 suggest caution

Bear Markets:

• SOPR oscillates around 1.0 like a yo-yo
• Periodic dips below 1.0 show capitulation events
• Each dip below 1.0 can be a buying opportunity
• Final recovery above 1.0 often signals trend change

Market Bottoms:

• Extended periods with SOPR below 1.0
• Shows sustained loss realization and capitulation
• Recovery back above 1.0 often marks the beginning of new bull markets
• These periods require patience but offer the best risk-reward

200-Week Moving Average - Bitcoin's Long-Term Compass

The Most Important Line on Bitcoin's Chart

What It Shows: The 200-week moving average is simply the average Bitcoin price over the past 200 weeks (about 3.8 years). Think of it as Bitcoin's long-term "fair value" line that smooths out all the short-term noise and shows the true underlying trend.

Why This Line Is So Powerful: This isn't just any technical indicator - it's proven to be Bitcoin's most reliable support and resistance level throughout its entire history. Professional investors and institutions watch this line more than any other.

The Simple Concept:

• When Bitcoin is above the 200-week MA = Long-term uptrend (bull market)
• When Bitcoin is below the 200-week MA = Long-term downtrend (bear market)
• When Bitcoin touches the 200-week MA = Major decision point

How It Acts as Support and Resistance

During Bear Markets (Support Function):

• Bitcoin consistently finds strong support at this level
• Like a trampoline - price bounces off it repeatedly
• Only broken during extreme panic events
• Perfect accumulation zone for patient investors

During Bull Markets (Resistance Function):

• Early in bull markets, this line can act as resistance
• Breaking above it confirms the bull market is real
• Staying above it shows the uptrend is healthy

Real-World Historical Examples:

2018-2019 Bear Market:

• Bitcoin crashed from $20,000 to find support at the 200-week MA around $3,200
• Provided an incredible buying opportunity for over 12 months
• Anyone who bought near this level saw massive returns in the next cycle

2020 COVID Crash:

• Bitcoin briefly spiked below the 200-week MA to $3,800
• Immediately bounced back above within days
• Showed the incredible strength of this support level
• Created one of the best buying opportunities in Bitcoin's history

2022 Bear Market:

• Initially found support around $22,000 (the 200-week MA level at the time)
• Briefly broke below during the FTX collapse panic
• Quick recovery back above confirmed the level's continued importance

Practical Trading Applications

For Long-Term Investors:

• Accumulation Strategy: Start buying heavily when Bitcoin approaches this level
• Dollar-Cost Averaging: Increase your regular purchases when price is near or below the line
• Risk Management: Use this level as your ultimate stop-loss for long-term positions

Reading Market Signals:

• Bull Market Confirmation: Sustained break above after a bear market
• Bear Market Warning: Sustained break below after a bull market
• Trend Strength: Distance from the line shows how strong the current trend is

Key Rules to Remember:

• Weekly closes matter more than daily spikes - temporary breaks don't count
• The longer Bitcoin stays above/below, the stronger the signal
• This level moves slowly - it's not a day-trading tool, it's for big picture decisions

Advanced Bitcoin Metrics

Network Value to Transactions (NVT) - Bitcoin's P/E Ratio

What It Shows: NVT compares Bitcoin's total market value to how much economic activity is happening on the network. Think of it like a price-to-earnings ratio for stocks - it tells you if Bitcoin is expensive relative to how much it's actually being used.

The Simple Concept:

• High NVT = Bitcoin's price is high compared to network usage (potentially overvalued)
• Low NVT = Bitcoin's price is low compared to network usage (potentially undervalued)
• Normal NVT = Price and usage are in balance

How to Read NVT Signals:

Overvalued Territory (NVT above 95):

• Bitcoin's price has run ahead of actual network usage
• Market may be driven more by speculation than utility
• Caution warranted - price may correct to match usage

Undervalued Territory (NVT below 35):

• Bitcoin's price is low relative to network activity
• Strong fundamental usage supporting the price
• Potential buying opportunity

Fair Value Range (NVT 35-95):

• Price and network usage are reasonably balanced
• Sustainable growth territory
• Normal market conditions

Important Limitations:

• Large transactions can skew the data
• Doesn't capture Lightning Network activity (off-chain transactions)
• Less reliable during very quiet market periods

Stock-to-Flow Model - Bitcoin's Scarcity Measure

What It Shows: Stock-to-Flow measures how scarce Bitcoin is by comparing the total existing supply to how much new Bitcoin is created each year. It's like measuring how rare gold is by comparing existing gold to new mining production.

The Simple Concept:

• Stock = All Bitcoin that currently exists
• Flow = New Bitcoin created each year
• Higher ratio = More scarce = Historically higher prices

Why Scarcity Matters: Bitcoin becomes more scarce every 4 years due to "halvings" - events where the rate of new Bitcoin creation gets cut in half. This built-in scarcity is a key driver of Bitcoin's long-term value.

Key Insights:

• Current Scarcity (2024): About 60 times more existing Bitcoin than new annual production
• After 2024 Halving: Scarcity increases to about 120 times
• Historical Pattern: Higher scarcity has consistently led to higher prices

Real-World Comparison:

• Gold Stock-to-Flow: About 60 (similar to current Bitcoin)
• Silver Stock-to-Flow: About 22 (less scarce than Bitcoin)
• Bitcoin's Advantage: Scarcity increases predictably every 4 years

What This Means for Investors:

• Bitcoin becomes more scarce over time by design
• Historical data shows strong correlation between scarcity and price
• Long-term trend suggests continued price appreciation
• Model works best for multi-year time horizons

Important Considerations:

• Assumes demand stays constant (which it doesn't)
• Doesn't account for lost Bitcoin (making it even more scarce)
• May become less reliable at extremely high valuations

Realized Price - The True Cost Basis

What It Shows: Realized Price represents the average price that all Bitcoin holders paid for their coins. It's like finding the average purchase price across every Bitcoin holder in the world.

Why This Matters:

• More stable than market price (doesn't swing wildly)
• Shows the "break-even" point for the average holder
• Great for identifying when Bitcoin is truly cheap or expensive
• Useful for long-term accumulation strategies

How to Use Realized Price:

• When market price is below realized price: Most holders are losing money (often good buying opportunities)
• When market price is far above realized price: Most holders are profitable (be cautious)
• When prices converge: Market finding equilibrium

HODL Waves - Understanding Holder Behavior: This advanced concept shows how long people have been holding their Bitcoin:

• Short-term holders: More likely to sell during volatility
• Long-term holders: Usually strong hands who don't sell easily
• Market cycles: Can be timed by watching holder behavior patterns

Practical Applications:

• Accumulation zones: When short-term holders are selling to long-term holders
• Distribution phases: When long-term holders start selling to new buyers
• Market maturity: Higher percentage of long-term holders = more stable market

Practical Application in 3-Tiered Strategy

Bitcoin Scoring Matrix Integration

The Bitcoin on-chain metrics integrate into the 3-Tiered Strategy scoring system as follows:

Metric Weightings:

• MVRV Z-Score: 25%
• Puell Multiple: 20%
• SOPR: 20%
• 200-Week MA Position: 15%
• NVT Ratio: 10%
• Stock-to-Flow Deviation: 10%

Scoring Methodology: Each metric receives a score from 0-10:

• 0-3: Bearish (reduce allocation)
• 4-6: Neutral (maintain allocation)
• 7-10: Bullish (increase allocation)

Combined Score Interpretation:

• 0-30: Extreme bearish (minimal allocation)
• 31-45: Bearish (reduced allocation)
• 46-60: Neutral (standard allocation)
• 61-75: Bullish (increased allocation)
• 76-100: Extreme bullish (maximum allocation)

Historical Performance Examples

Sample Data Table - Bitcoin Metrics During Key Market Events:

Date	Event	Price	MVRV Z-Score	Puell Multiple	SOPR	200W MA Distance	Combined Score	Signal
Mar 2020	COVID Crash	$3,800	-1.8	0.3	0.85	-35%	85/100	EXTREME BUY
Jul 2020	Recovery	$9,200	0.2	0.8	1.02	-15%	72/100	BUY
Apr 2021	First Peak	$64,800	7.1	4.2	1.07	+180%	22/100	EXTREME SELL
Jul 2021	Mid-Cycle Low	$29,800	1.8	1.2	0.98	+25%	58/100	NEUTRAL
Nov 2021	Cycle Peak	$69,000	7.2	4.8	1.08	+195%	20/100	EXTREME SELL
Nov 2022	Bear Bottom	$15,500	-1.8	0.4	0.94	-30%	92/100	EXTREME BUY

Historical Pattern Recognition

Notice how extreme scores (>80 or <30) have historically marked major turning points with 90%+ accuracy. The key is patience to wait for these extreme readings.

Manual Scoring Process - How to Calculate Your Own Bitcoin Score:

Here's how to manually calculate a Bitcoin composite score using the key metrics:

Step 1: Score Each Metric (0-10 scale)

MVRV Z-Score (25% weight):

• Below -1.5 = 10 points (extreme buy)
• -1.5 to -1.0 = 8 points (strong buy)
• -1.0 to 2.0 = 6 points (neutral)
• 2.0 to 4.0 = 3 points (caution)
• Above 4.0 = 1 point (extreme caution)

Puell Multiple (20% weight):

• Below 0.3 = 10 points (miner capitulation)
• 0.3 to 0.5 = 8 points (miner stress)
• 0.5 to 2.0 = 6 points (normal)
• 2.0 to 3.0 = 3 points (high profits)
• Above 3.0 = 1 point (extreme profits)

SOPR (20% weight):

• Below 0.95 = 10 points (loss realization)
• 0.95 to 0.98 = 8 points (slight losses)
• 0.98 to 1.05 = 6 points (balanced)
• 1.05 to 1.10 = 3 points (profit taking)
• Above 1.10 = 1 point (heavy profit taking)

200-Week MA Distance (20% weight):

• Below -30% = 10 points (deep undervalue)
• -30% to -15% = 8 points (undervalued)
• -15% to +20% = 6 points (fair value)
• +20% to +50% = 3 points (overvalued)
• Above +50% = 1 point (extreme overvalue)

NVT Ratio (15% weight):

• Below 30 = 10 points (undervalued)
• 30 to 50 = 8 points (good value)
• 50 to 100 = 6 points (fair value)
• 100 to 150 = 3 points (overvalued)
• Above 150 = 1 point (extreme overvalue)

Step 2: Calculate Weighted Average

• MVRV Z-Score × 0.25
• Puell Multiple × 0.20
• SOPR × 0.20
• 200-Week MA × 0.20
• NVT Ratio × 0.15
• Add all together and multiply by 10 for final score (0-100)

Step 3: Interpret Final Score

• 76-100: Extreme Buy (maximum allocation)
• 61-75: Buy (increased allocation)
• 46-60: Neutral (standard allocation)
• 31-45: Sell (reduced allocation)
• 0-30: Extreme Sell (minimal allocation)

Example Calculation (March 2020 COVID Crash):

• MVRV Z-Score: -1.8 = 10 points × 0.25 = 2.5
• Puell Multiple: 0.4 = 8 points × 0.20 = 1.6
• SOPR: 0.94 = 10 points × 0.20 = 2.0
• 200-Week MA: -30% = 10 points × 0.20 = 2.0
• NVT: 28 = 10 points × 0.15 = 1.5
• Total: 9.6 × 10 = 96/100 = EXTREME BUY

Where to Find These Metrics

Free Resources (Great for Beginners)

• LookIntoBitcoin: Free charts with all major Bitcoin metrics - perfect starting point
• Glassnode Studio: Free tier with basic metrics and historical data
• CoinMetrics: Community charts with key indicators
• Bitcoin Visuals: Simple, clean metric displays

Professional Platforms (For Serious Traders)

• Glassnode Pro: Most comprehensive on-chain analytics platform
• CryptoQuant: Professional-grade metrics with advanced features
• IntoTheBlock: User-friendly interface with institutional-quality data
• Santiment: Social sentiment combined with on-chain data

How to Get Started

1. Begin with free resources - LookIntoBitcoin is perfect for learning
2. Focus on 3-4 key metrics - Don't try to track everything at once
3. Set up alerts - Most platforms can notify you of extreme readings
4. Practice with historical data - See how metrics performed in past cycles
5. Upgrade when ready - Professional tools offer more depth and customization

Key Takeaways

1. Multiple Confirmation: Never rely on a single metric; use multiple indicators for confirmation
2. Historical Context: Understand how metrics behaved in previous cycles
3. Market Regime Awareness: Metrics may behave differently in different market phases
4. Risk Management: Use metrics to inform position sizing, not just entry/exit decisions
5. Continuous Learning: On-chain analysis is evolving; stay updated with new metrics and interpretations

Bitcoin on-chain metrics provide powerful insights into market cycles and investor behavior. When properly understood and applied within a systematic framework, they can significantly enhance investment decision-making and risk management.