On-chain data shows that the Bitcoin network value to transactions (NVT) ratio is above the bearish zone, implying that the recent price growth could have been healthy.
Bitcoin NVT ratio has remained outside the red since October
According to data from the on-chain analytics company Feeling, the NVT ratio has seen significant improvement recently. The relevant indicator here is the “NVT ratio”, which tracks the relationship between Bitcoin market capitalization and daily circulation.
Here, market capitalization is naturally the total asset value, while circulation refers to the number of unique tokens observing a certain movement on the network over a rolling 24-hour period.
Some other analysis 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 (like relay trades of the same coins, which are counted several times in the volume, but only once in circulation).
When the value of the NVT ratio is high, it means that the price of the asset is high relative to the blockchain’s current ability to trade coins. Such a trend may suggest that the coin is overvalued at the moment.
On the other hand, the fact that the metric is low implies that the cryptocurrency might be undervalued currently, as its trading volume is at healthy levels relative to market capitalization.
Here is now a graph that shows the evolution of the Bitcoin NVT ratio over the last few years:
Looks like the value of the metric has been green in recent days | Source: Santiment on X
As the chart above shows, the Bitcoin NVT ratio left historic bearish territory in October and has remained outside of it in the weeks since.
The metric has not yet exactly returned to the bullish zone proper; it tends more towards neutral. However, the fact that the indicator has improved during this period despite the cryptocurrency market capitalization also seeing a decline. a significant boost At the same time, this is certainly a positive development, as it suggests that growth in network activity has outpaced price increases.
At current values of the ratio, Bitcoin’s trading activity justifies its market capitalization, so at the very least the asset is not likely to be in immediate danger of loss. correction.
This naturally means that the rally should be able to continue for a while until the ratio moves back into bearish territory (which might not even happen if circulation continues to improve, as has been the case until now). ‘now during the price surge).
After experiencing a pullback up to $35,000 earlier, Bitcoin managed to recover above $37,000 over the past day.
The value of the asset has registered a strong rise during the past day | Source: BTCUSD on TradingView
Featured image by Jievani Weerasinghe from Unsplash.com, charts from TradingView.com, Santiment.net