The cryptocurrency bitcoin (BTC) has just re-entered a key price zone that has signaled the beginning of the end of previous bearish phases, data confirms..
In a Tweet from January 24, Charles Edwards, founder of cryptocurrency investment firm Capriole, pointed to Bitcoin’s network value-to-transactions (NVT) ratio metric as it gave a rare new “oversold” signal..
The NVT says that it is time to reverse the situation
Bitcoin price losses accelerated over the weekend, with the market not far from retesting the seminal $30,000 mark. ahead of Monday’s Wall Street open.
However, for on-chain analysts, there is every reason to believe that the magnitude of the losses seen recently is more of a market overreaction than a sign of things to come.
In support of this thesis is the NVT, which calculates the degree of overbought or oversold bitcoin.
the NVT, first developed by statistician Willy Woo and businessman Dmitry Kalichkin, uses the ratio of bitcoin’s market capitalization to its daily on-chain transaction value to create an idea of whether price action actually corresponds to on-chain activity.
Subsequently, Edwards 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 “dynamic range of NVT”, and it is this incarnation that returned to its green zone this week
In the last two years, only the summer of 2021 -the period after the mining ban in China- and the March 2020 coronavirus shock have produced this NVT behavior.
“Valuing the Bitcoin network based on transaction value performance suggests we have entered the value zone”Edwards commented on Twitter alongside a printout of NVT’s latest moves.
“People have short memories”
Back in the spot market, others questioned the veracity of the recent losses, even with the BTC/USD pair briefly topping -50% off November’s all-time highs.
Since it only took two months for some balances to be halved, the trader, analyst and podcast host Scott Melker, known as the “Wolf of all the streets”, reminded his followers that this is nothing new for bitcoin.
“People have short memories. In May, Bitcoin went from $60,000 to $30,000 in 10 DAYS! 10 DAYS”, tweeted.
“That was much more aggressive, at much higher volume, and it was only 8 months ago. We’ve been here before.”
As such, when it comes to the knee-jerk reactions of the cryptocurrency markets, the current decline, in Melker’s eyes, is not remarkable. Sentiment, meanwhile, has been at or near the bottom of its historical range for several weeks.
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