The Bitcoin Network Value to Transactions (NVT) Golden Cross indicator has reached overheated values coinciding with the recent local price high.
Bitcoin NVT Golden Cross Jumped to 3.17 During Recent Spike
An analyst in a CryptoQuant Quicktake job explained that the NVT Golden Cross could have served as an indicator of the recent cryptocurrency price peak.
“NVT” refers to an on-chain metric that tracks the ratio of Bitcoin market capitalization to trading volume (both in USD). This ratio is generally used to determine whether the price of the asset is fair or not.
When the indicator has a high value, the price of the asset (market capitalization) is high relative to its utility (trading volume). Such a trend may suggest that the coin might be overvalued currently.
On the other hand, a weak metric could suggest that the network is not fairly valued relative to its high capacity to conduct capital transactions and, as such, its price could be due for an increase.
In the context of the current discussion, the NVT itself is not of interest, but rather a modified version called the NVT Golden Cross. This metric compares the NVT's short-term trend (10-day moving average) to its long-term trend (30-day MA).
Like NVT, this variant is also used to estimate asset equity. Historically, values above 2.2 indicate that BTC is overheated, as the short-term trend significantly exceeds the long-term trend at these levels.
Likewise, values below the -1.6 level may indicate that the cryptocurrency is undervalued; therefore, its price could likely bottom and rebound soon.
Now here is a chart that shows the trend of Bitcoin NVT Golden Cross over the past few years:
The value of the metric seems to have been going up in recent days | Source: CryptoQuant
As seen in the chart above, Bitcoin NVT Golden Cross reached relatively high levels earlier. This growth occurred as the price of the asset surged towards the $71,000 level.
The metric touched the 3.17 mark during this surge, suggesting that the coin may have become too expensive. Indeed, the asset followed this by observing a sharp decline, which brought it back below the $65,000 level.
As the quantitative indicates in the chart, a similar trend of NVT Golden Cross hitting these high levels and causing a price correction has been observed at different times over the past few years.
Since the last overheating signal, the indicator has cooled alongside the Bitcoin price, although it has not yet moved to the negative side.
BTC Price
Bitcoin has recovered over the past day and its price has now recovered to $67,800.
Looks like the price of the asset has seen some uplift over the last 24 hours | Source: BTCUSD on TradingView
Featured image of Kanchanara on Unsplash.com, CryptoQuant.com, chart from TradingView.com
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