This Bitcoin metric reaches 2023 high: What’s next?

Journalist

Posted: December 20, 2023

• The Bitcoin NVT ratio is a valuable metric.
• The king coin’s MVRV ratio saw an uptick as well.

An on-chain metric of Bitcoin [BTC] reached an overheated value due to the rising prices in recent weeks. The inference was that the Bitcoin network was valued at a premium, and pointed to a potential overvaluation of BTC.

AMBCrypto found that a metric derived from the Network Value to Transactions Ratio, or NVT for short, had jumped to levels that usually indicate a market top. However, one metric alone does not fully explain the whole picture.

Thus, AMBCrypto decided to investigate deeper.

The NVT Golden Cross and what it means for investors

CryptoQuant calculates the NVT Golden Cross by comparing the short-term and long-term trends of the NVT. A reading of 2.2 or greater is generally associated with an overpriced network, and users can expect a reversal to the mean.

In the past two years, even though the metric has climbed above 2.2 multiple times, not each time coincided with an ATH for BTC prices. Rather, it pointed toward high network activity in a relatively short amount of time.

Source: CryptoQuant

It is meant to raise a note of caution in the minds of traders and investors, as it warns of a possible price correction to follow.

The soaring transaction fee that AMBCrypto reported earlier this week was a sure indication of the vast increase in the total value of transactions, a component of the NVT calculation.

This meant that we would expect to see a major increase in the number of active addresses. A lack of such an uptrend would mean that the BTC prices were propped up by speculatory forces and not genuine demand from users.

AMBCrypto took a look at the network’s active addresses to verify this.

Source: CryptoQuant

Since the 18th of October, the 7-day Simple Moving Average has ticked rapidly higher. This came alongside rising prices. The conclusion was that user activity has indeed exploded in recent weeks.

In turn, this caused a swift bump up in the short-term NVT.

What is the bigger picture for Bitcoin investors?

As we have mentioned already, an NVT Golden Cross value of 2.2 or greater is generally a local top. Multi-year holders of BTC need not panic and sell their holdings. Instead, they could wait for the metric to descend below 1.6 before buying.

Of course, using other metrics and news developments would aid investors further in making decisions.

To help these long-term holders, AMBCrypto took a look at the MVRV ratio for the past three years.

This metric reached a low of 0.759 on the 9th of November, showing that the asset was dramatically undervalued in the wake of fear around the FTX collapse.

Source: CryptoQuant

Since then, the metric has crept higher and higher. The rising MVRV and NVT metrics of the past couple of months meant that Bitcoin has been in a strong uptrend driven by organic activity.

Read Bitcoin’s [BTC] Price Prediction 2023-24

However, the MVRV ratio as calculated on the CryptoQuant chart above was nowhere near 3.7. In the past, this reading has been one of the signs that the market had topped.

Yet, it can not be guaranteed to capture the next market top accurately. Therefore, long-term holders can continue to hold or accumulate Bitcoin and wait for the run to continue over the next year or two.

See also  Bitcoin supply on exchanges hits 5-year low: BTC to $70k next?

Journalist

Posted: December 20, 2023

• The Bitcoin NVT ratio is a valuable metric.
• The king coin’s MVRV ratio saw an uptick as well.

An on-chain metric of Bitcoin [BTC] reached an overheated value due to the rising prices in recent weeks. The inference was that the Bitcoin network was valued at a premium, and pointed to a potential overvaluation of BTC.

AMBCrypto found that a metric derived from the Network Value to Transactions Ratio, or NVT for short, had jumped to levels that usually indicate a market top. However, one metric alone does not fully explain the whole picture.

Thus, AMBCrypto decided to investigate deeper.

The NVT Golden Cross and what it means for investors

CryptoQuant calculates the NVT Golden Cross by comparing the short-term and long-term trends of the NVT. A reading of 2.2 or greater is generally associated with an overpriced network, and users can expect a reversal to the mean.

In the past two years, even though the metric has climbed above 2.2 multiple times, not each time coincided with an ATH for BTC prices. Rather, it pointed toward high network activity in a relatively short amount of time.

Source: CryptoQuant

It is meant to raise a note of caution in the minds of traders and investors, as it warns of a possible price correction to follow.

The soaring transaction fee that AMBCrypto reported earlier this week was a sure indication of the vast increase in the total value of transactions, a component of the NVT calculation.

This meant that we would expect to see a major increase in the number of active addresses. A lack of such an uptrend would mean that the BTC prices were propped up by speculatory forces and not genuine demand from users.

AMBCrypto took a look at the network’s active addresses to verify this.

Source: CryptoQuant

Since the 18th of October, the 7-day Simple Moving Average has ticked rapidly higher. This came alongside rising prices. The conclusion was that user activity has indeed exploded in recent weeks.

In turn, this caused a swift bump up in the short-term NVT.

What is the bigger picture for Bitcoin investors?

As we have mentioned already, an NVT Golden Cross value of 2.2 or greater is generally a local top. Multi-year holders of BTC need not panic and sell their holdings. Instead, they could wait for the metric to descend below 1.6 before buying.

Of course, using other metrics and news developments would aid investors further in making decisions.

To help these long-term holders, AMBCrypto took a look at the MVRV ratio for the past three years.

This metric reached a low of 0.759 on the 9th of November, showing that the asset was dramatically undervalued in the wake of fear around the FTX collapse.

Source: CryptoQuant

Since then, the metric has crept higher and higher. The rising MVRV and NVT metrics of the past couple of months meant that Bitcoin has been in a strong uptrend driven by organic activity.

Read Bitcoin’s [BTC] Price Prediction 2023-24

However, the MVRV ratio as calculated on the CryptoQuant chart above was nowhere near 3.7. In the past, this reading has been one of the signs that the market had topped.

Yet, it can not be guaranteed to capture the next market top accurately. Therefore, long-term holders can continue to hold or accumulate Bitcoin and wait for the run to continue over the next year or two.