On-chain data shows that the bitcoin network’s value-to-transactions (NVT) ratio is currently within the overheated territory. Here’s what this could mean.
bitcoin NVT Golden Cross has risen into overheated territory
As noted by an analyst at CryptoQuant Quicktake btc-NVT-metric-suggests-overheated-market-cap-but-common-in-recovery-phaise” target=”_blank” rel=”noopener nofollow”>mail, the market capitalization of the asset may be overvalued at this time. The “NVT index” is an indicator that measures the relationship between bitcoin market capitalization and transaction volume.
When the value of this metric is high, it means that the value of the asset (i.e. market capitalization) is significantly greater than the network’s ability to transact coins (the transaction volume). This trend may suggest that the currency may be overvalued at the moment.
On the other hand, the fact that the indicator is low implies that the cryptocurrency may be undervalued at the moment, as blockchain transaction volume is relatively high currently.
In the context of the current discussion, the NVT ratio itself is not the focus, but rather a derived metric called “NVT Golden Cross.” This indicator aims to identify highs and lows in the NVT index by comparing its short-term trend (10-day MA) with its long-term trend (30-day MA).
Now, here is a chart showing the trend in bitcoin‘s NVT ratio over the past few years:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/11/Bitcoin-NVT-Signals-Overheating-Anything-to-Worry-About.png" alt="bitcoin N/A Golden Cross” width=”1280″ height=”806″/>
Looks like the value of the metric has shot up in recent days | Source: btc-NVT-metric-suggests-overheated-market-cap-but-common-in-recovery-phaise" target="_blank" rel="noopener nofollow">CryptoQuant
On the chart, the quant has marked the two historically interesting regions for bitcoin NVT Golden Cross. Generally, a metric above the 2.2 level implies that the market is overvalued, while below -1.6 suggests that the asset is underbought.
From the chart you can see that the indicator has recorded strong growth recently and has just touched the overvalued territory. This suggests that after the latest rally, the asset has started to overheat.
While the fact that the metric is in this region increases the chances of a correction, it does not necessarily mean that it should occur. As the analyst has highlighted in the graph, the fact that the indicator breaks the zone has been something that has happened in all recovery phases.
The cryptocurrency initially continues despite this pattern on the NVT Golden Cross; Only with more forays into the territory does the asset get closer to the top. Therefore, it is possible that bitcoin price will continue to rise for now even after the indicator rises to the bearish region.
In other news, btc adoption appears to have increased recently as the total number of new addresses opened each day has seen strong growth. The following picture shared by a analyst in X shows this trend.
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/11/Bitcoin-NVT-Signals-Overheating-Anything-to-Worry-About.jpeg" alt="New bitcoin addresses” width=”1800″ height=”1013″/>
btc new addresses have observed some uptrend recently | Source: @ali_charts on X
Adoption is usually a constructive signal to the network. In the context of the NVT ratio, more users could potentially mean higher trading volume, which should result in the market becoming less overheated.
btc Price
At the time of writing, bitcoin is trading at around $35,000, up 1% from last week.
<img decoding="async" loading="lazy" class="alignnone size-medium aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/11/Bitcoin-NVT-Signals-Overheating-Anything-to-Worry-About" alt="bitcoin price chart” width=”1534″ height=”869″/>
btc hasn't been moving much in the last few days | Source: BTCUSD on TradingView
Featured image by Kanchanara on Unsplash.com, TradingView.com charts, Glassnode.com
