Bitcoin Still “Overvalued” According to NVT Ratio

[ad_1]

The on-chain data shows that the signs are not looking good for Bitcoin as the NVT ratio indicates that the crypto is still overvalued right now.

The Bitcoin NVT ratio continues to be at high values

As one analyst pointed out in an article on CryptoQuant, BTC is currently overvalued from an on-chain perspective. The “Network Value to Transaction (NVT) Ratio” is an indicator that measures the ratio of Bitcoin’s market capitalization to its trading volume (both in USD).

This ratio judges whether the current value of Bitcoin (i.e. the market capitalization) is fair or not, by comparing it to the capacity of the network to process coins at this moment (the volume of transactions). When the metric has a high value, it means that the price of BTC is high relative to the volume, and therefore the coin could be inside a bubble at the moment. On the other hand, the low values ​​suggest that BTC might be undervalued as the chain has a large capacity to trade coins (relative to market cap) at the moment.

Here is a graph that shows the trend of the Bitcoin NVT ratio over the past year:

Looks like the value of the metric has been quite high over the past few weeks | Source: CryptoQuant

As shown in the chart above, the Bitcoin NVT ratio jumped after the collapse of LUNA in May this year and has since remained at similar or higher levels. This means that despite the price seeing several crashes over the period, the coin’s value has become increasingly overvalued as volumes in the market have fallen sharply.

Even after the FTX crash, which dealt another blow to the crypto market capitalization, the metric only climbed higher as it recently registered a new high for the year. BTC has only become increasingly overvalued as the bear deepens, suggesting the dire state of the market in terms of trading volumes.

The quant also notes that the number of losing UTXOs (essentially the number of losing wallets/investors) has been steadily increasing throughout the bear.

The metric continues to roll on a steady uptrend | Source: CryptoQuant

These two signs are definitely not in favor of Bitcoin and may imply that investors will be even more uncomfortable. “A more prolonged bear market could be seen as a potential risk that could add selling pressure,” the analyst explains.

BTC price

As of this writing, Bitcoin is trading around $16,800, down 5% in the past week.

The asset’s price action appears to have been stale in recent days | Source: BTCUSD on TradingView

Featured image of Maxim Hopman from Unsplash.com, charts from TradingView.com, CryptoQuant.com

[ad_2]