On-chain data shows signs are not looking good for Bitcoin as the NVT ratio indicates that the cryptocurrency is still overvalued at the moment.
Bitcoin’s NVT ratio remains at high levels
As one analyst pointed out in a CryptoQuant post, BTC is currently overvalued from an on-chain perspective. The “Network Value to Transactions (NVT) Ratio” is an indicator that measures the ratio between Bitcoin’s market capitalization and its transaction volume (both in USD).
This ratio assesses whether Bitcoin’s current value (i.e. market cap) is fair or not by comparing it to the network’s ability to trade coins now (transaction volume). If the metric has a high value, it means that the price of BTC is high compared to volume and therefore the coin could be in a bubble right now. On the other hand, low readings suggest that BTC may be undervalued as the chain currently has a high ability to trade coins (compared to market cap).
Here is a chart showing the Bitcoin NVT Ratio trend over the past year:
It looks like the value of the metric has been quite high for the past few weeks | Source: CryptoQuant
As the chart above shows, Bitcoin’s NVT Ratio skyrocketed following LUNA’s collapse in May of this year and has mostly stayed at similar or higher levels since. This means that despite falling in price multiple times over this period, the value of the coin was still becoming increasingly overvalued as volumes fell sharply across the market.
Even after the FTX crash that dealt another powerful blow to the crypto’s market cap, the metric has only climbed higher as it recently posted a fresh yearly high. BTC only got more and more overpriced as the bear deepened, indicating the dire state of the market in terms of trading volume.
The quant also notes that the number of loss-making UTXOs (basically the number of loss-making wallets/investors) has steadily increased throughout the bear run.
The metric continues to move in a steady uptrend | Source: CryptoQuant
These two signs are certainly not in Bitcoin’s favour, and could mean that more pain is in store for investors. “A prolonged bear market could be viewed as a potential risk that could increase selling pressure,” the analyst explains.
BTC price
At the time of writing, Bitcoin is trading around $16,800, down 5% over the past week.
The price action in the asset seems to have been stale for the past few days | Source: BTCUSD on TradingView
Featured image by Maxim Hopman on Unsplash.com, charts by TradingView.com, CryptoQuant.com
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