What Does Bitcoin’s NVM Ratio Reaching a Seven-Month Peak of 0.75 Signify?
CryptoQuant has recently reported on the NVM Ratio, a metric used to evaluate the fair value of a blockchain network based on the number of active users. The NVM Ratio is calculated by dividing the log of the market capitalization by the log of the square of daily active addresses within a specified time frame. This metric can provide valuable insights into the fluctuations, anomalies, and patterns of Bitcoin’s value.
In 2021, Bitcoin’s NVM Ratio ranged from 0.6 to 2, with values above 2 indicating an overvalued network. During this time, Bitcoin reached all-time highs, which corresponded with the NVM Ratio surpassing values above 2.
However, in May 2021, the China ban caused Bitcoin’s price to plummet, leading to a massive sell-off. Despite the drop in Bitcoin’s value, the NVM Ratio increased to values above 2, creating an anomaly that indicated an overvalued network.
In 2022, the NVM Ratio exhibited a descending pattern, falling below 0.6, which signaled the start of a bear market. The NVM Ratio continued to decline until it hit a two-year low of 0.26, indicating that Bitcoin was severely undervalued.
But in January 2023, the NVM Ratio experienced an inflection point and surged from 0.26 to 0.6, breaking its 100 EMA. This rise in the NVM Ratio was accompanied by a rise in Bitcoin’s price, indicating that the digital currency was undervalued and presenting a buying opportunity for investors.
Currently, the NVM Ratio for Bitcoin is showing an upward trend, reaching a seven-month peak of 0.75. Experts predict that the NVM Ratio will continue to rally and surpass values above 1, which suggests that the network is undervalued.
As the world of cryptocurrency evolves, innovative tools and techniques like the NVM Ratio can provide investors with valuable insights into the fair value of digital currencies. By understanding the fluctuations, anomalies, and patterns of the market, investors can make informed decisions and potentially profit from the crypto market’s volatility.
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