Bitcoin’s NVT Ratio Indicates Overheated Sentiment! Here’s why BTC price needs a retest:
Bitcoin price continues to maintain bullish momentum, holding above the $52,000 threshold as investor confidence is sparked by a bullish on-chain ETF report. Nonetheless, the surge in BTC purchase demand has been influenced by overheated market sentiment highlighted by various on-chain indicators, raising warnings of a potential downturn in the future. In such a scenario, Bitcoin’s immediate support level may need to be retested to stabilize its current momentum.
Bitcoin NVT rate soars
Cryptocurrency funds from asset managers such as BlackRock, Bitwise, Fidelity, Grayscale, ProShares and 21Shares saw inflows totaling $2.45 billion globally last week, according to CoinShares’ latest report.
The surge was primarily driven by the launch of a new US spot Bitcoin exchange-traded fund, bringing total inflows into digital asset investment products to $5.2 billion this year.
The recent price rise has brought the cryptocurrency investment firm’s assets under management (AUM) to $67 billion, the highest level since December 2021 at the peak of the previous bull market, CEO James Butterfill pointed out. Research from CoinShares.
As a result, the BTC price continues to experience positive momentum, staying above $52,000. However, several on-chain indicators are now signaling overheated sentiment towards the BTC price, suggesting that a price correction is likely necessary. Among these indicators, the NVT ratio (Network Value to Transactions) has increased noticeably and currently stands at 133.2. This means that Bitcoin’s network value has surged due to the price increase, but transaction volume has not shown a corresponding increase, indicating a possible overvaluation.
Additionally, the Netflow indicator has recently experienced a significant rise, moving into positive territory. This indicates that Bitcoin inflows exceeded outflows, increasing exchange holdings. This trend may result in a price correction for BTC. However, this retest could strengthen buying momentum.
What’s next for BTC price?
Bitcoin is facing resistance around $52,000, with sellers attempting to drive the price below $50,000. However, buyers continue to strongly defend against the downside. At the time of writing, BTC price is trading at $52,122, up more than 0.7% from yesterday.
A potential challenge to the sustainability of the rally is that the Relative Strength Index (RSI) is heading toward the midline, suggesting a correction is likely in the near term.
To confirm a bearish change, sellers would need to push the price below the 20-day exponential moving average ($51,880), potentially leading to a decline towards the $50,000 level. To increase the chances of a rise to $55,000, buyers would need a break above the $52,800 resistance.
On the other hand, to plunge upward momentum, bears would need to pull the price below the moving average, which could potentially trigger a decline towards the $48,300 breakout point. Bulls are likely to defend this level aggressively, but a breach could push the price down to $47,000 and possibly further to $44,800.