Bitcoin's $98K Drop: Network Activity Lags, Fair Value in Question

Bitcoin's recent price decline to $98K, following a surge above $100,000, has sparked debate about its valuation. While investors are excited about the price range, underlying on-chain data suggests a potential disconnect between Bitcoin's network activity and its current price.

Network activity has reached a one-year low, raising concerns about whether Bitcoin's price is justified at its current level. To assess if fundamentals support Bitcoin's rally, we evaluate key valuation metrics such as Metcalfe's law and the Market Value to Realized Value (MVRV) ratio.

According to Metcalfe's law, which values a network based on the number of active users, Bitcoin's fair value falls between $48K and $95K. With Bitcoin trading above this range, concerns about sustainability arise. The Metcalfe Valuation Bands, which have historically guided Bitcoin's price, indicate a potential deviation from the fair value range.

A deeper dive into Bitcoin's network fundamentals reveals a decline in daily active addresses, a metric for user activity. This trend aligns with the downward trend in Metcalfe valuation bands since March 2024, reflecting reduced on-chain engagement. The MVRV ratio further reinforces this concern, as an MVRV above 2.4 has historically preceded corrections, and the recent downtrend in this metric indicates potential overvaluation.

From a technical perspective, Bitcoin maintained a bullish structure but showed signs of exhaustion. The price is currently hovering near the 50-day Moving Average (MA) at $98,710, while momentum indicators suggest a slowdown. If Bitcoin fails to hold above this level, a pullback toward the $95K region is possible, aligning with the upper Metcalfe valuation band. However, Bitcoin could target psychological resistance at $100K if bullish momentum persists.

With network activity at a one-year low and price exceeding fair value estimates, Bitcoin appears overextended. While external factors like institutional demand and macro trends could sustain its rally, on-chain fundamentals paint a more cautious picture. Investors should closely monitor network growth and key support levels to gauge Bitcoin's next move.

If Bitcoin cannot sustain momentum above $98K, a healthy correction toward the $95K-$90K range could provide a better re-entry point. On the other hand, if BTC reclaim