On-chain data shows that the Bitcoin Network Value To Transactions (NVT) ratio has formed a bearish crossover, a sign that a drop is imminent.
The Bitcoin NVT ratio has formed a historic bearish crossover
The “NVT Ratio” is an indicator that measures the ratio between Bitcoin market cap and transaction volume. Put simply, this metric tells us if the asset’s price (the market cap) is reasonably valued compared to the network’s ability to handle coins (the transaction volume).
If the ratio has a value above 1, it means that the price may be inflated at the moment as the blockchain is not observing any significant capital movement. The risk of a correction generally increases the higher the key figure trends are above this mark.
On the other hand, if the indicator is below the threshold, it may mean that the market capitalization may be undervalued at the moment and therefore a price increase for the asset may be due.
In the context of the current discussion, it is not the NVT quota itself that is of interest, but a modified form called “NVT-Goldenes Kreuz”. This metric compares the NVT Ratio’s short-term moving average (MA) (10 days) to its long-term MA (30 days).
As one analyst pointed out in a CryptoQuant post, this golden NVT cross could currently be forming a pattern that could lead to a correction in the asset price.
The chart below shows the trend of the Bitcoin NVT Golden Cross and its 30-day exponential moving average (EMA) over the past year:
The two metrics seem to have crossed in the past few days | Source: CryptoQuant
As illustrated in the chart above, Bitcoin NVT’s golden cross has been declining recently and it just breached its 30-day EMA. This line appears to have had historical significance for the asset as evidenced by the cases flagged by the analyst.
In general, when the indicator crossed below this EMA line, the value of the cryptocurrency took a tumble. As can be seen from the chart, this pattern has held a number of times during this rally so far.
Of course, using this historical precedent as a guide, the current bearish crossover could also see Bitcoin posting a decline in the near future.
However, it should be noted that the crossover may not be fully confirmed yet as the golden NVT cross has dipped only slightly below the 30-day EMA so far. So, it is possible that in the coming days the indicator will reverse and unclog the cross.
It now remains to be seen whether the Bitcoin NVT golden cross and the 30-day EMA would stay on the same path and strengthen the cross, or whether the pattern would pull back.
BTC price
At the time of writing, Bitcoin is trading around $29,200, down 1% over the past week.
BTC has continued to show stagnation lately | Source: BTCUSD on TradingView
Featured image by mana5280 on Unsplash.com, charts by TradingView.com, CryptoQuant.com
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