Bitcoin On-Chain Analysis: NVT Suggests Significant Rally Ahead

CoinCu will look at on-chain metrics, more specifically NVT (Network Value to Transaction) to determine the outlook for Bitcoin price in the near future.

What is NVT?

NVT (Network Value to Transaction) is an indicator that shows the relationship between on-chain transaction volume (transaction) and market capitalization. It is simply the quotient of market value and daily on-chain transaction volume.

A very high reading is considered bearish as it means that an increase in market value is not supported by an increase in transaction volume on the chain.

Current reading level

As of early 2019, NVT has generally traded in a 20 to 40 range, with some variance above and below this range.

Towards the end of 2021, the divergence started to become more pronounced. At this point, Bitcoin price was hovering around all-time highs.

In September, the NVT fell below the lows before retreating.

More importantly, this indicator has been falling with Bitcoin price since December 2021. This is taken as a bullish sign as when the price falls, on-chain transactions do not decrease at the same rate.

While Bitcoin price is very close to its July low, the number of on-chain transactions is not. It currently stands at 250,663, well above the July 2021 low of 195,224.

NVT signal

NVT Signals is a slightly different indicator that uses a 90-day moving average (MA) of on-chain volume instead of raw data.

Since the 2018 low, NVT has fallen below 20 only four times (black circle). This was last seen on January 24th when it hit a low of 16.9. The previous three dips below 20 have all resulted in a significant rally.

Therefore, it is possible that a similar uptrend will follow this time.

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