Bitcoin (BTC) Network Value-to-Transaction (NVT) Ratio Reaches All-Time High, Indicating the Cryptocurrency Could Be Overvalued

Bitcoin (BTC) retrieved a four-month price range above $60,000 after a two-week deviation, trading at $64,000.

Bitcoin (BTC) price hit a four-month high of above $64,000 on July 19; however, a key network value indicator reaching an all-time high suggests that Bitcoin might be overvalued at its current level.

Crucially, data retrieved by Finbold from Santiment showed Bitcoin's Network Value-to-Transaction (NVT) ratio reached an all-time high on Monday. The NVT indicator is often likened to the price-to-earnings (P/E) indicator used in fundamental analysis for stocks.

As a result, Bitcoin's seven-day NVT ratio stands at 151, considering a transaction volume of $19.43 billion at a price of $64,100. In 2021, the Network Value-to-Transaction peaked at 58 as BTC traded at $44,800 and $106.92 billion was transacted on the chain.

At the time, Bitcoin was heading to the top of the last bull cycle, preluding the inevitable correction that followed.

How does Network Value-to-Transaction (NVT) indicate an overvalued Bitcoin?

This indicator is derived by dividing the market capitalization of an asset by its transaction volume. As such, a high NVT ratio is indicative of a high relative valuation, suggesting that an asset is overvalued. Conversely, a low NVT ratio indicates a low relative valuation, suggesting that an asset might be undervalued.

In summary, a high NVT ratio suggests that an asset's price is rising disproportionately to its network activity. This could indicate a speculative demand for the asset without a proportional organic demand, hinting at an impending correction if the network activity does not pick up.

Hence, the high NVT ratio for Bitcoin is mainly caused by an aggressive increase in the BTC price, which was not followed by network activity.

On the other hand, speculative demand remains strong, signaled by high open interest (OI) values and significant inflow to institutional products like the Bitcoin spot ETF. If new buyers continue to surge despite the low network usage, this could help BTC's price sustain the current level.

On June 16, Finbold reported a similar alert for an overvalued Ethereum (ETH) above $3,500, with a 134 NVT. Interestingly, ETH went on to hit a local bottom two weeks later at $3,090, shedding over 11% of its value.

Finbold also covered a concern about the centralization of the Bitcoin network recently, bringing uncertainty to its security.

In a contrasting development, bullish bias is evident among crypto analysts, with different technical analyses pegging BTC at $180,000, according to a chart pattern, or tracing a roadmap directly to $200,000.

As usual, investors should remain cautious and consider different analyses and indicators to improve decision-making in such a volatile market.

The above is the detailed content of Bitcoin (BTC) Network Value-to-Transaction (NVT) Ratio Reaches All-Time High, Indicating the Cryptocurrency Could Be Overvalued. For more information, please follow other related articles on the PHP Chinese website!