Bitcoin (BTC) has just re-entered a key price zone, which marked the beginning of the end of bearish phases, the data confirms.
In a January 24 tweet, Charles Edwards, founder of crypto investment firm Capriole, reported Bitcoin’s network-to-transaction value (NVT) metric, as it provided a new and rare “oversold” signal.
NVT says it’s reversal time
Bitcoin’s price losses accelerated over the weekend, with the market not far from retesting the $30,000 mark ahead of Wall Street’s open on Monday.
Still, for on-chain analysts, there are plenty of reasons to believe that the magnitude of the losses seen recently is more of a market overreaction than a taste of things to come.
This thesis is supported by NVT, which calculates how overbought or oversold Bitcoin is.
NVT, first developed by statistician Willy Woo and entrepreneur Dmitry Kalichkin, uses the ratio of Bitcoin’s market capitalization to its daily on-chain transaction value to create an idea of the actual correspondence between price behavior and on-chain activity.
Edwards then modified the metric by adding standard deviation bands to account for natural changes in on-chain behavior as Bitcoin matures. The result was the so-called “NVT dynamic range,” and it was that incarnation that returned to its green zone this week.
In the past two years, only the summer of 2021 – the post-China mining ban period – and the coronavirus crash of March 2020 produced such NVT behavior.
“The valuation of the Bitcoin network based on transaction value throughput suggests we have entered the value zone,” Edwards commented on Twitter alongside an impression of NVT’s latest moves.
“People have short memories”
Back in the spot market, others questioned the veracity of recent losses, even with BTC/USD briefly surging -50% from November all-time highs.
Related: Illiquid Supply “Rises Relentlessly” – 5 Things to Watch in Bitcoin This Week
With two months being all that was needed for some balances to halve, trader, analyst and podcast host Scott Melker, known as “Wolf Of All Streets”, reminded subscribers that this was not not new to bitcoin.
“People have short memories. In May, Bitcoin went from 60K to 30K in 10 DAYS! 10 DAYS”, it tweeted.
As such, when it comes to knee-jerk reactions in the crypto markets, the current pullback, in Melker’s eyes, is trivial. The feeling, meanwhile, has been to or near the bottom of its historic range for several weeks.