Bitcoin’s price swings can feel unnerving. You might be considering buying some Bitcoin, but the market's volatility has you second-guessing your decision. Suddenly, you get distracted, and the opportunity passes. Master Bitcoin price prediction and calm your trading nerves. What Is Bitcoin Analysis? This blog will help you answer that question. You’ll gain actionable insights to help you develop the skills and knowledge to predict Bitcoin price movements using Bitcoin indicators and make informed trading decisions confidently.
One valuable tool to help you achieve your goals is Bitcoin Magazine Pro's Bitcoin analysis. This resource enables you to break down Bitcoin's price action to uncover helpful information to help you make informed trading decisions.
What is Bitcoin Analysis & How Does It Work?
Bitcoin analysis assesses the Bitcoin market to follow tendencies, make predictions, and gain benefits from doing so. Bitcoin traders already have some approaches to this. One is by using Bitcoin technical analysis, which investigates all the backgrounds of BTC, including:
- Price charts
- Trading volumes
Expert Trading Methods
Using methods like this helps experts make wiser Bitcoin trades, analyze the market’s sentiment, and highlight significant trends.
Some special applications, such as chart analysis and chain analysis, help specialists and beginners conveniently keep track of Bitcoin changes.
Two Main Types of Bitcoin Analysis
There are a lot of methods you can use to research an asset you’re interested in trading. But two major strategies investors use are
- Technical analysis
- Fundamental analysis
1. Understanding Bitcoin Technical Analysis
Technical analysis focuses on an asset’s historical market performance. By examining price and trading volume, you can get a sense of how the market sees the asset. These are the kinds of questions that technical analysis asks:
- Is it rising or falling?
- Are people putting money in or taking it out?
- Is it traded widely and in large quantities?
2. Fundamentals of Bitcoin Fundamental Analysis
With fundamental analysis, you can decide if an asset is overpriced or underpriced based on how you see its intrinsic value. As in, will it be more useful in the future?
Why Use Different Types of Bitcoin Analysis
Unless you can access high-level models and tools that pro traders use, combining both strategies can provide a fuller view of your trades.
Fundamental analysis looks at the more objective indicators for an asset's potential long-term value, things like:
- Network activity
- Use case
- Business model
- Roadmap
Technical analysis focuses specifically on an asset’s market performance.
Related Reading
- Bitcoin Price Prediction
- Spot Bitcoin ETF
- Bitcoin Crash
- Who Owns The Most Bitcoin
- How To Trade Bitcoin
- Bitcoin Bull Run
- Best Tradingview Indicators
- Bitcoin Cycle
- Bitcoin Volatility
Bitcoin Analysis Predicts BTC Price Increase Due to Coinbase Premium and Golden Cross
Bitcoin’s price action has recently faced multiple tests of the $60,000 support level. The situation looks dire amid global market uncertainties, including geopolitical tensions in the Middle East. Despite these challenges, robust underlying demand marks an optimistic outlook for Bitcoin’s short-term price recovery.
What Is Coinbase Premium and Why is it Important?
Several indicators suggest a potential recovery for Bitcoin, including the Coinbase premium metric. This metric measures the price difference between:
- The BTC/USD pair on Coinbase
- The largest U.S. exchange
- The BTC/USDT equivalent on Binance
CryptoQuant contributor Yonsei_dent utilized moving averages on this premium to analyze Bitcoin’s price behavior.
The Significance of a Golden Cross
A golden cross occurs when a short-term moving average crosses above a long-term moving average, suggesting positive momentum and potential bullish trends.
- Recent Occurrences: As noted by Yonsei_dent, a golden cross was observed recently, aligning with Bitcoin’s rise above $66,000 at the end of the previous month.
- Implications: Despite a price correction from $66,000 to approximately $61,000 on October 1, ongoing demand from U.S. investors indicates renewed upward pressure.
The Coinbase Premium reflects this consistent demand and may signal a potential short-term recovery in Bitcoin’s price.
Bitcoin Enjoys ‘Strong’ U.S. Demand
Analysis has shown that, in recent weeks, Coinbase has maintained a positive premium over Binance, a supportive sign for BTC price performance. This trend suggests that U.S. demand for Bitcoin remains robust, reinforcing Bitcoin’s market presence even in a challenging environment.
Mass Withdrawals and Exchange Dynamics
Exchanges have seen significant Bitcoin withdrawals, hitting their highest levels since the FTX collapse in November 2022. The Coinbase Flow Pulse tool, which tracks Bitcoin inflows to Coinbase from other exchanges, reveals strong U.S. demand.
Insights from Coinbase Flow Pulse
Consistent Demand: The ongoing positive inflow of Bitcoin to Coinbase indicates a persistent demand within the U.S. market.
Price Outlook: Despite experiencing a local pullback, the overall bullish trend remains intact, suggesting potential upward movement in the near term.
Bitcoin Technical Analysis for Beginners
Technical analysis involves predicting future price movements by examining past market data. In trading, this primarily means looking at price charts. However, reading markets is not an exact science.
That has yet to make technical analysis less popular among traders looking for the next obscure indicator to lead their portfolio to glory. Technical analysis has, technically, been around for centuries. Its roots can be traced back to the 17th century during the Dutch Golden Age, when traders started studying prices to predict future market behavior.
Technical Analysis Origins
But it's more accurate to say that what most Twitter anons and market analysts think of as technical analysis originated in the early 20th century. That's thanks to Charles H. Dow, the founder of the Dow Jones Industrial Average and co-founder of The Wall Street Journal.
While the foundational elements of technical analysis hold up, analysts have had to adjust how they're applied and interpreted in the often volatile and always-on market.
Technical Analysis Terms
What follows is a mix of classic technical analysis terms and ones introduced over the past decade as chart watchers have figured out what to watch for in markets.
Key Terminology to Know When Analyzing Bitcoin Charts Support and Resistance Levels, Trend Lines, and Moving Averages
Before analyzing Bitcoin charts, it's essential to understand some key terms associated with technical analysis. Here are some basic definitions to get you started:
Support and Resistance Levels
Support and resistance levels are critical concepts in technical analysis. Support is the price level at which a downtrend can be expected to pause or reverse due to a concentration of demand or buying interest.
Resistance is the price level at which an uptrend can be expected to pause or reverse due to a concentration of selling interest.
Trend Lines
Trend lines connect price points on a chart to illustrate the direction and speed of an asset's price movement over time. The more times a trend line is touched, the more significant it becomes.
Moving Averages
Moving averages (MAs) are indicators that show the average price of an asset over a specific time period. They smooth out price data to help identify the direction of the trend.
There are several types of MAs, including:
- The simple moving average (SMA)
- The exponential moving average (EMA)
Chart Patterns: A Crucial Element of Technical Analysis
Distinctive patterns are formed by moving security or digital asset prices on a chart. They are the foundation of technical analysis. Some common ones include:
- Head and Shoulders
- Inverse Head and Shoulders
How to Read Bitcoin Volume Charts
Volume is a key indicator that helps you assess the strength of a price move. The larger the volume when an asset's price increases or decreases, the more likely the trend will continue. If the volume is low, the trend may be weak and prone to reversal.
How to Use Bitcoin Trading Platforms to Your Advantage
The right tools can make all the difference when analyzing Bitcoin price charts. Many online trading platforms offer built-in tools for technical analysis to help traders identify trends and make informed decisions.
Informed Decision-Making
Whether you're a curious Bitcoin investor wanting to grasp the factors influencing Bitcoin's price or an analyst eager to expand your knowledge, Bitcoin Magazine Pro aims to provide clarity and insights to support more informed decision-making in the Bitcoin space.
Save 30% on Bitcoin Magazine Pro's Bitcoin analysis tool today when you sign up on our annual plan!
Related Reading
- Bitcoin Nodes
- Bitcoin Adoption
- Bitcoin Futures Trading
- Bitcoin Institutional
- Bitcoin Derivatives
- Why Is Bitcoin So Volatile
- What Makes Bitcoin Go Up
- On Chain Analysis
- Bitcoin Network Congestion
- Top 10 Bitcoin Mining Companies
What is Bitcoin Fundamental Analysis?
Fundamental analysis of Bitcoin analyzes essential factors driving the supply and demand for Bitcoin as an asset.
It is inherently linked to examining the Bitcoin network and mining activities that measure Bitcoin’s global adoption and application and the global demand for Bitcoin.
Fair Value Estimation
Understanding what fundamental variables drive the demand for Bitcoin and how the Bitcoin price has been changing historically with changes in those driving factors will help investors and traders estimate Bitcoin's fair value and use it as a basis for making investment and trading decisions.
Factors Affecting Bitcoin Prices
Fundamental analysis involves assessing various intrinsic factors that could influence Bitcoin prices. Key components include:
- Regulatory developments
- Technological advancements
- Market adoption rates
- Macroeconomic indicators
Regulatory news, whether positive or negative, can trigger significant price fluctuations as it shapes Bitcoin:
- Legal standing
- Broader acceptance
Technological improvements, such as scalability solutions, can bolster Bitcoin’s:
- Utility
- Drive demand
Increased adoption by institutional investors or mainstream corporations often leads to bullish sentiments. Macroeconomic factors, like inflation rates and geopolitical tensions, can also sway investors towards or against Bitcoin as a hedge.
A practical fundamental analysis integrates these elements to form a holistic view of Bitcoin’s potential price trajectory.
The Role of Fundamental Analysis in Bitcoin
Fundamental analysis plays a crucial role in evaluating Bitcoin. It considers non-quantifiable factors, determines its intrinsic value, and guides investors to make informed decisions.
Evaluating Non-Quantifiable Factors
To conduct a fundamental analysis on Bitcoin, it is important to evaluate non-quantifiable factors that can influence its price. These factors include the trustworthiness of the following:
- Digital Currency
- Market sentiment
- Speculative attention
Trustworthiness plays a significant role in determining Bitcoin's value. Investors who perceive Bitcoin as secure and reliable are more likely to invest in it, increasing its price.
Market Sentiment
Market sentiment refers to how investors feel about Bitcoin at a particular time. Positive sentiment can drive up prices, while negative sentiment can lead to a decline.
Speculative attention also impacts Bitcoin’s price as increased interest from traders seeking profit can cause volatility in the market.
Non-Quantifiable Factors
Understanding these non-quantifiable factors is essential for evaluating Bitcoin's true value and making informed investment decisions.
By considering trustworthiness, market sentiment, and speculative attention, investors can gain insights into potential fluctuations in Bitcoin’s price and adjust their strategies accordingly.
Informed Trading
Investors must utilize fundamental analysis to assess these non-quantifiable factors and other quantitative indicators to make well-informed trading decisions.
Determining Intrinsic Value
Determining Bitcoin's intrinsic value is an integral part of fundamental analysis. Intrinsic value refers to an asset's actual worth or true value, independent of its market price.
Its limited supply, global demand, and technological advancements determine Bitcoin's intrinsic value. Economic indicators and market trends also influence this analysis. By assessing these factors, investors can decide whether Bitcoin is overvalued or undervalued in the market. Understanding the intrinsic value helps traders and investors maximize their potential returns in the market.
Making Informed Investment Decisions
When dealing with Bitcoin, it’s important to use fundamental analysis to make smart investment choices. This means examining different factors that can influence its value and using that information to decide whether it’s a good time to buy or sell.
By evaluating economic indicators, analyzing market trends, considering regulatory developments, and assessing technological advancements, you can better understand Bitcoin’s potential for growth.
Informed Investing
With this knowledge, you can make more informed decisions about investing in Bitcoin and maximize your market returns.
So don’t just rely on speculation or guesswork. Take the time to research and use fundamental analysis to guide your investment decisions.
How to Conduct Fundamental Analysis on Bitcoin
To conduct a fundamental analysis of Bitcoin, you need to:
- Assess economic indicators
- Analyze market trends
- Evaluate regulatory developments
- Consider technological advancements
Assessing Economic Indicators
Assessing economic indicators is an important part of conducting fundamental analysis on Bitcoin. Here are some key indicators to consider:
- Global economic conditions: The overall state of the global economy can impact Bitcoin prices. Factors such as GDP growth, inflation rates, and interest rates can influence investor sentiment towards the digital currency.
- Government policies and regulations: Changes in government policies and regulations, such as the legalization or restriction of digital currencies, can significantly impact Bitcoin prices. Monitoring regulatory developments is crucial for understanding potential risks or opportunities.
- Financial market trends: Monitoring trends in traditional financial markets, such as stock markets or currency exchange rates, can provide insights into investor sentiment and risk appetite. These trends can indirectly affect the demand for Bitcoin.
- Adoption by institutions: The increasing adoption of Bitcoin by institutional investors, such as banks or investment firms, can signal growing confidence. News about institutional investments or partnerships can impact Bitcoin prices.
- Technology advancements: Technological developments related to blockchain technology or improvements to the Bitcoin network can increase adoption and potentially drive up prices. Keeping track of technological advancements is essential for assessing future value.
Analyzing Market Trends
Market trends play a crucial role in the fundamental analysis of Bitcoin. By analyzing these trends, you can gain valuable insights into the potential future direction of Bitcoin prices. Here are some key factors to consider when analyzing market trends:
- Historical Price Patterns: Examining past price movements can help identify patterns and trends that may repeat in the future. This analysis can provide valuable information about potential support and resistance levels.
- Trading Volume: Monitoring trading volume can indicate investor interest and liquidity in the market. Higher trading volumes suggest increased activity and may indicate a stronger trend.
- Price Volatility: Assessing price volatility helps gauge the risk of trading Bitcoin. High volatility can present profit opportunities but also carries higher risks.
- Market Sentiment: Considering market sentiment is essential as it reflects investors’ attitudes and emotions towards Bitcoin. Positive sentiment can increase demand and price appreciation, while negative sentiment may result in selling pressure and price decline.
- Correlation with Other Assets: Analyzing the correlation between Bitcoin prices and other assets, such as stocks or gold, can provide insights into broader market conditions and potential influences on Bitcoin’s value.
- News and Events: Keeping up with news events that impact the market is essential for understanding short-term price movements. Major news, regulatory decisions, or technological advancements can significantly impact Bitcoin prices.
Evaluating Regulatory Developments
Regulatory developments play a significant role in influencing Bitcoin prices. Government regulations can have both positive and negative effects on the market. Here are some key factors to consider when evaluating regulatory developments:
- Government acceptance or rejection: Government policies and attitudes can impact investor sentiment and the overall demand for Bitcoin.
- Legal framework: Establishing clear regulatory frameworks gives investors a sense of security, leading to increased adoption and price stability.
- Taxation policies: Tax regulations on transactions can impact trading volumes and liquidity, ultimately affecting Bitcoin prices.
- AML/KYC compliance: Regulations related to Anti-Money Laundering (AML) and Know-Your-Customer (KYC) requirements can determine Bitcoin's trustworthiness and influence its value.
- Exchange regulations: Stringent regulations on exchanges can affect their operations, liquidity, and accessibility, thus impacting Bitcoin prices.
- Central bank actions: Central banks’ decisions regarding interest rates, monetary policy, or digital currency initiatives can influence investor confidence in Bitcoin.
- International regulations: Changes in global financial regulations or geopolitical events may indirectly affect Bitcoin prices.
- Security measures: Regulatory requirements for cybersecurity and customer protection may enhance trust in the industry, positively impacting Bitcoin prices over time.
- Overall market stability: Well-regulated markets tend to attract institutional investors who bring stability to the market through increased liquidity and reduced volatility.
Consideration of Technological Advancements
When analyzing Bitcoin using fundamental analysis, it is essential to consider the technological advancements that can impact its price. Here are some key points to consider:
- Scalability solutions: Bitcoin has faced challenges with scalability due to its limited transaction processing capacity. Advancements in scalability solutions, such as the Lightning Network, can enhance Bitcoin’s usability and potentially increase its demand and price.
- Privacy features: Privacy is an important aspect of Bitcoin. Improvements in privacy features, such as zero-knowledge proofs or confidential transactions, can make Bitcoin more attractive for users seeking financial privacy. These advancements can positively impact Bitcoin’s value.
- Security enhancements: As the largest digital currency by market capitalization, Bitcoin is often targeted by hackers and cybercriminals. Continual improvements in security measures are crucial for maintaining trust in the network and protecting user funds. Technological advancements that enhance Bitcoin’s security can positively influence its price.
- Integration with traditional finance: More institutions are starting to recognize Bitcoin's potential. Technological advancements that allow for seamless integration with traditional financial systems, such as Bitcoin-friendly regulations or interoperability protocols, can boost institutional adoption of Bitcoin and drive up its value.
Is Bitcoin Under or Overvalued? What Fundamental Analysis Tells Us
Bitcoin (BTC) is a revolution within modern investing, with characteristics distinct from traditional assets. As we value Bitcoin, conventional financial analysis tools encounter uncharted territory.
Valuation Techniques
We aim to determine whether Bitcoin is over or undervalued using fundamental analysis valuation techniques.
This question is particularly pertinent today, as Bitcoin investors face an uncertain future between two major bullish events:
- Aspot ETF approval
- An upcoming block reward halving
Fundamentally Analyzing Bitcoin
Fundamental analysis (FA) investment research aims to ascertain an asset’s true or inherent value. Intrinsic value is calculated without considering an asset’s market value or speculative considerations.
Instead, analysts employ different modeling tools, focusing on factors other than market pricing, to arrive at an intrinsic value. Fundamental analysis tries to answer the simple question, "What is an asset worth?”
Fundamental Factors
Fundamental analysis examines internal and external factors that may impact a company or product’s value. New changes to a company’s flagship product or the global economy's health can affect an investment’s value. These elements may impact an asset’s intrinsic worth before they impact its market value.
Using fundamental research, investors can be alerted to purchase assets when they are undervalued and sell them when their intrinsic value exceeds their market price (overvalued).
Fair Value Philosophy
The investment philosophy is that assets will inevitably move towards their fair market value. If the fundamental analysis shows that an asset’s intrinsic worth differs from its market value, there may be a trading opportunity.
Fundamental Analysis of Bitcoin is Not Straightforward
Fundamental analysis has been used in the traditional share market for decades, but the challenges of using fundamental analysis for assets are distinct.
Due to the asset class’s numerous distinctive qualities, it cannot be evaluated using the same framework as conventional enterprises or commodities.
Tool Limitations
Tools exist, but given the sector's nascent nature, each has its proponents and detractors. For potential investors, this offers both an opportunity and a challenge.
The various digital assets have many uses, and Brave New Coin’s General Taxonomy Of Cryptographic Assets provides a useful reference overview.
Cash Flow Evaluation
Since Bitcoin (BTC) assets don’t produce cash flows, evaluating them using typical stock investment indicators, such as future cash flow, is difficult.
Some protocol tokens may be evaluated using a modified version of a conventional fundamental analysis model, such as Discounted Cash Flow (DCF), which provides holders and token stakers a percentage of platform revenue.
DCF Model
Bitcoin is not unique because its intrinsic value cannot be determined based on its cash flows. Hard assets, such as Gold and Silver, are comparable, and this class of assets needs to be evaluated depending on where the asset’s price may be headed in the future. The availability of the asset and the demand for it will determine this.
Intrinsic Value Models
Although none are perfect, several rational and straightforward models have been developed to predict Bitcoin’s intrinsic value changes. They have all been used to give helpful signals to traders who lean towards a fundamental approach to investing.
Bitcoin’s Supply-Based Value Indicators
The circulating supply of BTC can be determined quite easily. The network's predetermined, finite, fixed monetary policy defines future supply. This means assessing the intrinsic value of the Bitcoin network, though its supply is an appealing option.
Stock-To-Flow
One of Bitcoin’s most popular valuation models, stock-to-flow (S2F), is almost exclusively focused on supply metrics. Stock-to-flow measures how much new supply of an asset is being created over time (flow) relative to the existing supply (stock).
It measures how many years it takes, at the current production rate, for production to achieve an asset's current stock. The higher this number is, the higher the expected price. S2F suggests that a commodity with a stock that takes 100 years to produce is more valuable than a current stock that only takes 20 years.
Unforgettable Costliness
The more difficult a commodity is to produce and the less of it there is, the more inherently scarce it becomes and the more its assumed value rises. Stock-to-flow was around before Bitcoin. It was a model for determining the intrinsic value of mined hard assets like gold and silver.
The stock-to-flow model only works for Bitcoin because of its scarcity. Bitcoin’s scarcity means it has value as money. Computer scientist Nick Szabo says scarcity creates “unforgeable costliness,” which creates intrinsic value for an asset. This should mean that as the supply of Bitcoin tightens and becomes more scarce, it becomes more valuable.
Bitcoin Uniqueness
Bitcoin cannot be copied, duplicated, pirated, or forged. It is packaged in blocks of ~500 transactions that contain all the other information required to secure the network.
Blocks are 1MB and generated roughly every 10 minutes. The Bitcoin network has been generating blocks uninterrupted since its inception. When the network was first launched on January 3, 2009, miners earned 50 Bitcoins (BTC) as a reward for validating transactions and publishing blocks to the Bitcoin ledger.
Freshly Minted Supply
This 50 BTC is a freshly minted supply. New Bitcoin will continue minted until a pre-determined final supply of 21 million is reached.
Bitcoin was built with a pre-planned deflationary monetary policy. For every 210,000 blocks, the supply of Bitcoin is halved. The halving cuts the miner’s Bitcoin reward in half, reducing the rate at which a new BTC is issued.
Halving Events
The halving events will continue until no new BTC is issued to miners. Bitcoin can be fractioned to a maximum of 8 decimals, reducing miner rewards to 0 BTC.
This should be around the 33rd halving in the year 2140, when the 21 millionth BTC will come into existence and the final total supply will be reached.
Scarcity and Value
Bitcoin’s position as a verifiable scarce asset with some demand means that its value increases as it becomes more difficult to acquire with each new halving. This deflationary mechanism has significant implications for BTC’s stock-to-flow model, given the asset's ‘flow’ or production rate, which halves every four years.
The conceptualizer of the Bitcoin for stock-to-flow model, a pseudonymous analyst who goes by PlanB, has stated in the past that his model may not work for other proof-of-work altcoins like Litecoin because they do not have the same ‘unforgeable costliness’ that Bitcoin does.
How To Calculate Bitcoin Stock-to-flow
S/F=Stock/Flow
The stock-to-flow of an asset is equal to the total current available stock of an asset divided by the yearly production. There are presently around ~19,400,000 BTC in existence as circulating supply, and about 328500 new Bitcoins are created each year.
There may be some debate about the exact value of the circulating supply, given factors such as lost Bitcoin or coins that have never moved from Satoshi’s wallet. Still, because of the uncertainty surrounding these factors, we internalize their impact on the circulating supply.
19,600,000 \ 328500= 59.7
It would take around 59 years of current BTC production to produce the current stock of Bitcoin. What is important to remember about BTC is that up until the last halving, 1,800 new BTC was made each day and 657,000 per year.
Before the last halving, its stock-to-flow number was significantly lower, and based on stock-to-flow logic, it was theoretically less valuable than it is now.
Bitcoin Stock To Flow
The above chart displays how Bitcoin’s dynamic S2F drives up its intrinsic value over time. As indicated by the vertical red line, Bitcoin's emission rate halves every four years.
The total stock of Bitcoin is fixed, but because BTC production slows every four years, its scarcity, potential purchasing power, and intrinsic value grow.
Undervalued Bitcoin
Based on a 463-day variation, the stock-to-flow model values BTC's current intrinsic value at ~US$115,83. This is well above BTC's current US$ value of US$39,912.
This suggests that BTC is significantly undervalued and offers an excellent buy proposition at its current price. Interestingly, the S2F model of Bitcoin predicts that after the next two halvings, by which Bitcoin’s production rate would have quartered, the intrinsic value of BTC will be above ~US$508,000.
Valuing Bitcoin Based on Demand
Supply-based valuation models are imperfect because they don’t consider demand, perhaps a larger determinant of price and value.
Bitcoin Demand
Bitcoin was initially designed to be a digital cash alternative that acted as a decentralized alternative to central bank-controlled fiat money. It can and has been used as a fiat money alternative.
Decentralized Network
Bitcoin does not need the backing of a government or a banking system to function. It is operated by a decentralized network of independent nodes that coordinate but do not collude to manage the network.
The network is trustless; it does not need a monetary authority like a central bank to act as a counterparty to risk and be a lender of last resort if its ecosystem fails.
Borderless Bitcoin
Bitcoin is also borderless and almost impossible to counterfeit. A double-spend attack may be used to counterfeit Bitcoin, but the likelihood of this attack being successful is extremely low.
Network Value to Transactions Ratio (NVT)
The network value to transactions (NVT) ratio is a key indicator for evaluating the correlation between market cap and transfer volume.
Numerous commentators, including Willy Woo, the model’s developer, compare NVT to the price-to-earnings (PE) model, which determines the worth of company stocks in conventional markets.
NVT Model
NVT is one of the earliest developed on-chain valuation models. It combines Bitcoin's utility and value. Bitcoin was primarily built as a network that enables payment and settlements.
This is its characteristic that should drive intrinsic value outside of speculation. On-chain transaction volume (the value of transactions, not the number of transactions) measures how much Bitcoin is used as a settlement layer for payments by whales or everyday users in developing countries.
Intrinsic Value Divergence
When combined with market cap, it offers a useful tool for determining whether there may be an active divergence between BTC's intrinsic and market values.
NVT Chart
The above chart compares the Bitcoin NVT signal, a modified version of NVT, with its price. The NVT signal is calculated as:
NVTS = Network Value90 day MA of daily transaction
Market Cap Analysis
Market cap is a proxy for market value, and MA means moving average. Moving averages help create a smooth line that adjusts for very short-term jumps in transaction activity.
The blue line above, adjusted NVTS, is a further extrapolation designed to compensate for upward drift in the NVT signal. The drift is caused by investors moving Bitcoin volume off-chain and then handling it there, unseen and unrecorded by the blockchain.
NVTS Analysis
The adjusted NVTS displays how many standard deviations NVTS is above or below its historical norm. The historical norm is the two-year moving average of NVTS; the standard deviation calculation uses 2-year sampling.
NVTS offers a simple, easy-to-read signal. When NVTS is rising, the signal is bearish and indicates declining fundamentals. Market cap is rising faster than transaction volume, suggesting that the market is overvaluing BTC and that a correction may be incoming.
NVTS Bands
The simplest way to read the NVTS is via its upper-bound and lower-bound bands. When NVTS has historically been close to its upper-bound band, this has signaled price bearishness. NVTS suggests that around this point, Bitcoin's market cap, or its extrinsic value, is higher than its intrinsic value, the number of transactions on the network.
The NVTS signal is close to its upper bound, suggesting that Bitcoin is overvalued and may be set for a price reversal.
Thermocap Multiple
Thermocap is an indirect metric that measures Bitcoin's intrinsic value based on the amount miners are being paid. The model was developed by an anonymous analyst named GeertJanCap.
The metric measures the implied value paid to Bitcoin miners in charge of validating transactions and securing the network. Miners are the network's workhorses, and the Thermo cap measures how much they earn for their services.
Bitcoin Entrepreneurs
They are Bitcoin's entrepreneurs. Price and market cap measure Bitcoin's investor side—the investors, savers, and speculators.
Thermocap may be equivalent to a fundamental metric used in traditional finance valuations:
- Enterprise Value-to-Earnings Before Interest
- Taxes
- Depreciation
- Amortization
- EV-to-EBITDA
Thermocap Calculation
The thermocap of Bitcoin is calculated by taking the miner reward and transaction for each block and multiplying it by the BTC price at the time the new Bitcoin was minted.
Thermocap Multiple
The total historical block subsidy is calculated by taking the number of Bitcoins mined each day and multiplying them by the end-of-day price on that day. The final value is then calculated by adding together the daily subsidies for every previous day before the present day.
Thermocap Chart
The Thermo cap multiple can tell us some interesting things about the price. When it is high and blowing off, it likely means that miners are being paid too much, users are perhaps overvaluing their services, and a pullback of both intrinsic and market value is intuitively set to occur. A low Thermo cap suggests that miners are being paid too little, and a mean reversion is set to occur.
The Thermocap is middling. It sits around the 75 level, well below the heights between 200 and 500 it has hit. This suggests more room to pay miners in the form of more expensive BTC.
Market Cap/Realized Cap (MVRV)
We can also measure Bitcoin's fair value based on investor behavior using metrics like Market Cap/Realized Cap (MVRV).
These metrics view Bitcoin as an asset likely to be sold cyclically, and the size of profit, more than utility, determines whether BTC is bought or sold.
MVRV and Cap
Analysts Murad Mahmudov and David Puell developed the MVRV, and soon after it was Realized, Nic Carter and Antoine Le Calvez of the Coinmetrics team developed Cap.
Market Cap, in the context of digital currency, is the total number of coins mined or in circulation multiplied by the price of a single coin.
Realized Cap
Realized cap is a variation of market cap; instead of multiplying every coin by the current market price of BTC, it multiplies each coin based on the price at which it last moved.
Accurately knowing the cost of a coin when it last moved is possible because of Bitcoin’s UTXO technology.
Realized Cap
The realized cap reflects the network’s value more accurately than the market cap because it reduces the impact of lost or dormant coins. If coins are moved more recently at a price higher or lower than when it was last moved, then this change in the value of the realized cap.
Given that the realized cap is the price of coins when they last moved, it is often considered a useful proxy for value stored on the network.
Market Cap Analysis
When combined with other metrics like market cap, the realized cap can indicate whether BTC is overpriced or underpriced.
If the market value is higher than the value stored on the network, this may signal a selling opportunity, and vice versa if the network's stored value is higher than the market value.
MVRV Indicator
MVRV is a tool to indicate aggregate Bitcoin investor behavior. It can be a leading indicator of whether investors will sell or buy based on the difference between the current market price and the cost that investors paid for their Bitcoin.
When the MVRV value is very high, the market price of BTC is much higher than what the aggregate investor has paid for it. This suggests that in the near future, a sell-off may be coming as investors look to realize profits. Vice versa, when MVRV is low, investors are likely hoping to hold and wait for profits.
MVRV
In the past, blow-off tops for the MVRV have preceded BTC price drops and have been useful tools for identifying selling opportunities.
MVRV hitting floors and the trough of downtrends has often worked as a buy signal. The tops of MVRV tend to be much more extreme than the bottoms.
MVRV Signal
Like many other indicators mentioned in the article, the signal being sent by the MVRV is neither bullish nor bearish. It is middling, in between the ‘buy’ and ‘sell’ zones indicated in green and red. This suggests that there is room for the price of Bitcoin to drop or fall.
Mayer Multiple
Bitcoin pioneer Trace Mayer developed the straightforward Mayer Multiple indicator for which the 200-day moving average compares the current Bitcoin price to a long-term historical price range for BTC.
Like many other indicators, the Mayer Multiple reveals Bitcoin as potentially under or oversold in the context of longer time frames.
Moving Average
An indicator called a moving average (MA) averages out the value of any quantity over a predetermined amount of time. The “moving” aspect of the average refers to how frequently it is updated depending on fresh pricing information received.
A moving average can be calculated using any time period. Historically, a 200-day MA has been well-liked for identifying the market's bull and bear cycles.
Cycle Analysis
The Mayer multiple is calculated by dividing the current price of BTC by the average cost of BTC over the last 200 days. Historically, the Mayer multiple dipping below or near 0.5 strongly indicates a cycle bottom.
A cycle top is indicated by a Mayer Multiple value of 2.3. Currently, the Mayer Multiple sits at 1.24 and is trending downwards. This is another middling value suggesting that the price of BTC has room to go up or down.
Save 30% on Bitcoin Magazine Pro's Bitcoin Analysis Tool With Our Annual Plan
Bitcoin analysis helps investors make better decisions about buying, selling, and holding Bitcoin. Save 30% on our Bitcoin analysis tool with our annual plan.