On-chain data shows that the bitcoin network’s value-to-transactions ratio (NVT) is above the bearish zone, implying that the recent price growth could have been healthy.
bitcoin‘s NVT Ratio Has Stayed Out of the Red Since October
According to data from the on-chain analysis firm Holy, the NVT ratio has seen significant improvement recently. The relevant indicator here is the “NVT index”, which tracks the relationship between bitcoin market capitalization and daily circulation.
Market capitalization here is, naturally, the total value of the asset, while circulation refers to the number of unique tokens that see some movement on the network within a rolling 24-hour period.
Some other analytics websites use trading volume instead of circulation, but Santiment’s version uses the latter because volume often contains noise that is not relevant to the market (such as relay transactions of the same coins, which are counted several times in the volume, but only once in circulation).
When the NVT ratio value is high, it means that the price of the asset is high compared to the blockchain’s ability to transact coins at the moment. This trend may suggest that the currency may be overvalued at the moment.
On the other hand, the fact that the metric is low implies that the cryptocurrency could be currently undervalued, as its trading volume is at healthy levels compared to the market capitalization.
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-Still-Bullish-Clear-Sign-of-Recovery.jpeg" alt="bitcoin NVT Ratio” width=”1789″ height=”820″ loading=”lazy”/>
Looks like the value of the metric has been green in recent days | Source: Santiment on X
As shown in the chart above, bitcoin‘s NVT ratio broke out of historic bearish territory in October and has continued to stay out of it in the weeks since.
The metric has not exactly returned to the bullish zone yet; has leaned more towards neutral. However, the fact that the indicator has improved during this period even though the cryptocurrency’s market capitalization also saw a significant boost at the same time is certainly a positive development as it suggests that the growth in cryptocurrency activity the network has overcome the price increase.
At the ratio’s current values, bitcoin‘s transactional activity justifies its market capitalization, so at the very least, the asset may not be in immediate danger of a correction.
Naturally, this means that the rally should be able to continue for a while until the ratio returns to bearish territory (which may not even happen if circulation continues to improve, as it has during the price surge so far).
btc Price
After seeing a pullback as low as $35,000 previously, bitcoin successfully recovered above $37,000 over the past day.
<img loading="lazy" decoding="async" class="alignnone size-medium aligncenter" src="https://www.tradingview.com/x/ZPyolhvq/" alt="bitcoin price chart” width=”1534″ height=”869″/>
The value of the asset has registered a strong rise during the past day | Source: BTCUSD on TradingView
Featured image by Jievani Weerasinghe on Unsplash.com, TradingView.com charts, Santiment.net
