Data from Santiment shows that both Bitcoin and Ethereum are currently lacking the trading volumes to justify their market caps.
Bitcoin and Ethereum NVT ratios are both bearish right now
This is reported by the on-chain analytics company Sanitation, both the bitcoin and ethereum networks should see an uptick in activity this year. The relevant indicator here is the “Network value to transaction” (N/A) ratio, which measures the relationship between a cryptocurrency’s market capitalization and its transaction activity.
Usually, the trading volume is considered the transaction activity of a coin, but Santiment’s NVT ratio works differently. Instead of dividing market cap by volumes, this version of the metric uses “daily circulation,” a measure of the total number of unique coins that have seen some movement in the past day.
The advantage of the circulation indicator is that transactions, where the same coins jump through different wallets, are only counted once for the measurement, whereas the normal trade volume metric would have counted them as many times as they were transferred. This helps eliminate duplicate trades and provides a more accurate picture of market activity.
Now what the NVT ratio tells us is how the market cap of Bitcoin or Ethereum currently compares to the activity on the respective networks. High readings of the statistic suggest that the volumes are currently much lower than the limit, which is why the coin may be overvalued at the moment. On the other hand, low values suggest that the price may be undervalued.
Here is a chart showing where the NVT ratio has appreciated Bitcoin and Ethereum over the past few years:
The value of the metric seems to have been bearish for both the coins recently | Source: Santiment
As the chart above shows, the NVT ratio has been bearish for Bitcoin since August 2022. This means that the circulation on the BTC network has remained quite low in recent months compared to the crypto’s market cap.
For Ethereum, the value of the indicator fluctuated between bearish and bullish throughout 2022, but the coin appears to have ended the year as overvalued as its circulation was bearish in December.
If the cryptos remain overvalued according to the NVT, a correction may be imminent for them. “The circulation of both networks should pick up in 2023, and this week will tell when no holidays start,” explains Santiment.
BTC price
At the moment of writing, The price of Bitcoin floating around $16,700, down 1% over the past week.
Looks like BTC has surged in the last couple of days | Source: BTCUSD on TradingView
Featured image of mana5280 on Unsplash.com, charts from TradingView.com, Santiment.net