Critical On-Chain Bitcoin Indicator Falls to 2021 Low; How Could It Impact Prices?

Yerevan (CoinChapter.com) — Bitcoin is now 600 percent more worth today than it was in March 2020. But the bulls that have supercharged the cryptocurrency to its recent record high are showing no signs of stopping, at least according to an on-chain indicator.

Dubbed as Network Value to Transactions (NVT) Golden Cross, the indicator studies Bitcoin’s previous local price ̦peaks and troughs. If the NVT reading goes above 2.2, then it increases downside risks in the Bitcoin spot market. Similarly, a reading below 1.6 suggests a brewing upside scenario.

Blockchain data analytics firm CryptoQuant released the latest NVT reading on Friday to gauge the bitcoin market’s upcoming bias. The South Korea-based portal noted that the outcome fell to its lowest levels in 2021, suggesting that the cryptocurrency’s path to minimum risk is skewed to the upside.

Read More: Bitcoin Road to $100K Receives Further Boost From Nexon; $100MM Invested

What is Bitcoin NVT?

Designed by on-chain analyst Willy Woo, the NVT indicator studies bitcoin price trends by pitting its network value against the daily trading volume (in the US dollar) transmitted through its blockchain. It is equivalent to a profit-to-earning indicator in the stock market. While Mr. Woo has abandoned the formula, its improvised reiterations have appeared across other blockchain analytics platforms, including CryptoQuant.

The CryptoQuant’s version of NVT has lately predicted local bottoms and peaks in the Bitcoin market, as shown in the chart below. For instance, the NVT Golden Cross’s drop below 1.6 in the third quarter of 2020 signaled a price boom that would shoot Bitcoin towards the $65,000 valuation in April 2021.

With the indicator now treading near its 2021 lows, the prospect of the Bitcoin price hitting has surged in tandem. CryptoQuant noted in its tweet issued earlier Friday:

“BTC has upside potential from the perspective of the NVT valuation model.”

Next Stop: $100,000

The statements surface when BTC/USD risks a 2018-style market collapse amid increasing bubble woes. In 2018, the price collapsed from $20,000 to near $3,000 after the notorious initial coin offering burst.

Many agree that the rally in 2020-2021 is different since it involves the global mainstream adoption of Bitcoin as a safe-haven asset. But worries remain that the Bitcoin bubble is growing because of the Federal Reserve’s open-ended easing programs, which risks bursting dangerously on first signs of tapering from the US central bank.

Read More: Bitcoin Buy Orders Of $100,000 Reaching All-Time Highs

Some, including Bloomberg analyst Mike McGlone, even say that BTC/USD would rise to $100,000 as investors’ demand for hedging asset goes higher against the potential of the US dollar declines.

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