Journalist
Posted:
- The Bitcoin NVT ratio is a valuable metric.
- The MVRV ratio of the king coin also saw an increase.
An on-chain metric of Bitcoin [BTC] reached an overheated value due to rising prices in recent weeks. The inference was that the Bitcoin network was valued at a premium and pointed to a possible overvaluation of BTC.
AMBCrypto discovered that a measure derived from the Network Value to Transactions Ratio, or NVT for short, had jumped to levels that typically indicate a market top. However, one measure alone does not explain the whole picture.
That’s why AMBCrypto decided to do deeper research.
The NVT Golden Cross and what it means for investors
CryptoQuant calculates the NVT Gouden Kruis by comparing the short-term and long-term trends of the NVT. A value of 2.2 or higher is generally associated with an overpriced network, and users can expect a reversion to the mean.
While the metric has risen above 2.2 several times over the past two years, this has not coincided with an ATH for BTC prices each time. Rather, it indicated high network activity in a relatively short time.
Source: CryptoQuant
It aims to create a warning in the minds of traders and investors as it warns of a possible price correction that will follow.
The rising transaction fees that AMBCrypto reported earlier this week were a clear indication of the massive increase in the total value of transactions, part of the NVT calculation.
This meant that we expected a large increase in the number of active addresses. The absence of such an uptrend would mean that BTC prices were supported by speculative forces and not real user demand.
AMBCrypto looked at the network’s active addresses to verify this.
Source: CryptoQuant
Since October 18, the 7-day Simple Moving Average has moved rapidly higher. This was accompanied by rising prices. The conclusion was that user activity has indeed exploded in recent weeks.
This in turn caused a rapid increase in NVT in the short term.
What’s the Bigger Picture for Bitcoin Investors?
As we’ve already mentioned, an NVT Gold Cross value of 2.2 or higher is generally a local top. Multi-year holders of BTC don’t need to panic and sell their holdings. Instead, they could wait until the value drops below 1.6 before buying.
Of course, using other metrics and news developments would further assist investors in making decisions.
To help these long-term holders, AMBCrypto has been looking at the MVRV ratio for the past three years.
This metric hit a low of 0.759 on November 9, showing that the asset was dramatically undervalued in the wake of the scare surrounding the FTX collapse.
Source: CryptoQuant
Since then, the metric has been creeping higher and higher. The rising MVRV and NVT metrics in recent months meant that Bitcoin was in a strong uptrend, driven by organic activity.
Read Bitcoin’s [BTC] Price forecast 2023-24
However, the MVRV ratio as calculated on the CryptoQuant chart above was nowhere near 3.7. In the past, this value was one of the signs that the market had reached the top.
However, accurate representation of the next market top cannot be guaranteed. Therefore, long-term holders can continue to hold or accumulate Bitcoin and wait for the run to continue over the next two years.