Bitcoin Price Drops 5% as NVT Golden Cross Signals Overvaluation

On-chain data indicates that the Bitcoin Network Value to Transactions (NVT) Golden Cross has surged into a zone that historically signals overpriced conditions for the asset. This metric, based on the NVT Ratio, compares the BTC market cap to transaction volume, providing insights into whether the asset is overvalued or undervalued.

The NVT Ratio, which tracks the ratio between the BTC market cap and transaction volume, suggests that the ability to transact coins reflects the asset’s ‘fair value.’ A high NVT Ratio implies that the market cap is high compared to the transaction volume, potentially indicating that BTC is becoming overheated. Conversely, a low NVT Ratio suggests room for growth relative to its volume.

The NVT Golden Cross, a signaling indicator similar to Bollinger bands for the NVT Ratio, aims to locate tops and bottoms in its value by comparing the short-term trend (10-day MA) with the long-term trend (30-day MA). The recent sharp uptick in the NVT Golden Cross has entered the region above the 2.2 mark, a zone where the cryptocurrency’s market cap has historically outpaced the transaction volume, leading to price corrections to the downside.

Historically, not every top in the NVT Golden Cross within this territory coincides with a price top, and the decline in the asset is not always significant. However, since the signal has appeared, the asset has been going down, suggesting that the reversion effect may be in play once more. It remains to be seen whether the downside will be limited or if this will result in an extended drawdown.

At the time of writing, Bitcoin is trading around $103,700, down almost 5% in the last seven days. The price of the coin has plunged in the past day, reflecting the potential impact of the NVT Golden Cross entering the overvalued zone.