The data confirms that Bitcoin (BTC) has just entered a key price zone which signals the beginning of the end of the bearish phase.
In a tweet on January 24, Charles Edwards, founder of crypto investment firm Capriol, referred to Bitcoin’s network-to-transaction (NVT) metric because it gave a new and rare “oversold” signal.
NVT says it’s response time
Bitcoin’s exchange rate losses accelerated over the weekend as the market approaches a fresh test of the $30,000 level ahead of Wall Street’s open on Monday.
However, there are many reasons why network analysts believe the scale of recent losses is more of an overreaction to the market than an obsession with the future.
Supporting this task is NVT, which calculates the amount of overbought or oversold bitcoin.
Created by statistician Willie Wu and founder Dmitriy Kalichkin, NVT uses the relationship between bitcoin’s market capitalization and the value of daily on-chain transactions to generate insights into whether price action is actually in line with on-chain activity.
Edwards then modified the computation by adding standard deviation ranges to account for natural changes in chain behavior as Bitcoin matures. The result is the so-called NVT Dynamic Zone and it is this incarnation that is back in the green this week.
Over the past two years, only the summer of 2021 – the period of the mining ban after China – and the collapse of the Corona virus in March 2020 gave NVT this behavior.
“The valuation of the Bitcoin network based on the flow of transaction value indicates that we have entered value territory,” Edwards commented on Twitter with a transcript of NVT’s recent moves.
Bitcoin NVT dynamic range chart vs BTC/USD chart. Source: Charles Edwards / Twitter
“People have short memories”
Back in the spot market, others questioned the recent losses, even as BTC/USD briefly surpassed -50% from its November highs.
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Just two months were enough to halve the balance, and trader, analyst and podcast host Scott Melker, better known as “The Wolf of All Streets,” reminded followers that this is nothing new for Bitcoin.
“People have short memories. In May, Bitcoin went from 60k to 30k in 10 days! 10 days,” he tweeted.
“It was more aggressive, with much more volume, and that was only 8 months ago. We have been here before.”
BTC/USD daily chart (bit sign) showing the May 2021 drop. Source: Trading View
Thus, when it comes to the reversal of the crypto markets, the current downturn, according to Melker, is not noticeable. Meanwhile, sentiment has been at or near the bottom of the historic region for several weeks.