Bitcoin On chain Status: What happens Next? Part 1

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Oct 24, 2021

Patrick Rychter

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Twitter: Daily__Dopamine

We are Currently Sitting at a modest BTC price of 59K. Is it something to be concerned about? What is the data telling us on chain?

Onchain Metrics.

1.0 Active Addresses

Active Addresses can be looked at as a proxy for coin demand. Currently BTC is monotonically increasing with price. Despite the recent pull back, active users are beginning to become increasingly euphoric about the state of the market. The historic month of (UP)tober has seen positive price action. History often times rhymes, and it so happened to repeat itself once again this October. The price surged from 40k to beat its ATH. The price had historic moments, the price can’t sustain that type of price growth without a visible pullback. Therefore, we will look at signs that the market had showed to indicate this recent pullback and where it potentially could go from here. Let’s look at the NVT model and BTC circulation for further indication.

1.1 Circulation:

Amount of unique coins circulating on the block chain network is also monotonically increasing with price. The sustained upward growth is showing increasing utility on the network or investor buying incentive. Current signs show a sustained uptick. That’s Bullish! But the coin utility is only telling us one side of the story. The NVT model can give us another perspective about whether the amount of activity and circulation are corresponding positively with the price action. Is the market overvalued or undervalued at the current time?

1.1 NVT Ratio:

It takes Market cap of a coin (Market Value of BTC) and then you divide that by the amount of unique BTC (units of BTC) moving on the Blockchain on a daily basis. If the market value is too high relative to the amount of value being transferred on the network on daily basis then the coin might be too overvaluated at the current time. Conversely, if the market value is too relative to the amount of coin being transferred on the blockchain daily, which is a proxy for network effect, then we might be undervauled. Currently for the first time in last year, the NVT model ticked green, showing great structure in market valuation.

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Oct 24, 2021

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