Bitcoin Still Undervalued Based on These On-Chain Indicators

Key Takeaways

  • Bitcoin on-chain indicators on network usage and supply suggest that BTC is undervalued.
  • Leading analysts indicate that there is more room for price appreciation in the current bull cycle.
  • BTC buyers are showing strength above $9,000 while sellers have been reluctant to unload their long-term holdings.

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Bitcoin price indicators equivalent to the price-to-earnings (PE) ratio for stocks point towards an uptrend, according to leading on-chain analysts. The growth in total mining hashrate is also setting BTC up for more gains.

Bitcoin Undervalued, According to NVT Ratio 

The PE ratio of a stock is the ratio between its share price and its earnings per share. A company’s earnings are defined by the profits, after-tax, distributed to shareholders for the financial year. 

Since Bitcoin does not represent shares in a company and has no profits, its PE ratio can only be approximated with on-chain indicators⁠—network value to transaction value ratio (NVT) and realized value to transaction ratio (RVT).

Introduced by the on-chain analyst Willy Woo and then later formalized as an indicator by Dimitry Kalichkin, NVT measures the ratio between the total market capitalization and the daily volume of on-chain transactions. 

The value of the ratio oscillates between the upper and lower band, indicating overbought and oversold conditions in the market. Currently sitting at 131, the ratio suggests that market prices should increase relative to Bitcoin’s on-chain activity.

Similar historic periods of Dynamic Range NVT undervaluation (and similar time spans from overvaluation) have been volatile, but in hindsight mostly for buying, says the founder of Capriole Investments Charles Edwards.

The movement shows similarities with Bitcoin’s accumulation phase in 2015 when prices less than $500 per coin. BTC went on to an all-time high of $20,000 in the next two years.

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