The Week On-Chain (19 Feb 2020 - 26 Feb 2020)
Despite Bitcoin's price dropping back below $9000 in the wake of a market shake-up, on-chain fundamentals show that BTC is not overvalued.
Bitcoin Market Health
After the downward correction last week, BTC has continued to drop in price. Since the table below was published (Wednesday 26 February), the price of bitcoin has decreased even further, dropping below $9k.
Current BTC price (Thursday 27 Feb): ~$8800
This retrace coincides with some significant reductions in on-chain economic activity. USD volume, raw transaction count, and the number of active addresses/entities have all fallen in the past week, since bitcoin peaked above $10k.
Last week we posed the question of whether we'd reached a local top and could expect a retrace, or whether we were looking at another upcoming rally. Although the price has continued to drop, last week's decrease in active entities has slowed to a halt, signalling a potential recovery in on-chain economic activity and providing hope for a rally in the coming weeks.
This is supported by analysts and backed by BTC's 200-day moving average, which suggest that the bullish trend of 2020 is not over - with the general consensus identifying support at the $8200-8500 level.
However, traders are also preparing for the possibility that BTC may fall below $8000, at which point there are chances of an even stronger decline. Fears of the ongoing effect of coronavirus on markets (both traditional and crypto) make this possibility more likely, despite healthy fundamentals. Is there enough bullish sentiment to hold up prices, despite decreasing confidence in the market's ability to withstand the crisis?
Let's see how market predictions stack up against on-chain metrics...
Bitcoin's MVRV Z-Score: More Room to Grow
The MVRV Z-Score is used to assess whether bitcoin is overvalued or undervalued relative to its "fair value", as underlined by its realized cap. When the metric is too high (red-zone), this usually indicates market tops, while a lower ratio (green-zone) indicates market bottoms.
The present low MVRV Z-Score suggests that BTC is still undervalued, with significantly more room to grow before reaching the next market top. This provides support for many analysts' prediction that bitcoin will stay above $8000 for the time being.
Readers should continue to monitor the MVRV Z-Score to identify any potential trend changes early.
Short-Term Investor Trends: BTC Still Undervalued, According to STH-MVRV
Short Term Holder MVRV (STH-MVRV) is MVRV that takes into account the behaviour of short-term investors. This ratio provides a clean support/resistance line that correlates with upward and downward market trends.
As of 16 January this year, STH-MVRV (7-day MA) has climbed and remained comfortably above 1. Historically, this has correlated with uptrends in the price of BTC, suggesting fundamental support for higher prices. Barring any radical events that might affect confidence in the market, this metric suggests that BTC has room for more imminent growth.
Stay tuned on Glassnode Studio for the launch of STH-MVRV next week.
Content and insights derived from Glassnode data by our community
In a compelling tweet thread, @caprioleio uses data from Glassnode Studio to support his bullish prediction: "🚀Bitcoin $100K within 5 years".
Where will this money come from?— Charles Edwards (@caprioleio) February 16, 2020
👇40% of BTC is locked in wallets that have not moved their coin in >2 yrs.
👇Bitcoin Inflation rate to halve in May & again in 4 years.
BTC will be the lowest inflation asset ever known to man
Note: HODL Wave pattern👀
Based on estimates of Bitcoin's Energy Value, combined with evidence of demand increasing along with supply contracting, he predicts that the price of bitcoin will increase at least 10x over the coming years.
Overall, despite unforeseeable events affecting price in the short-term, he believes that BTC fundamentals still paint an optimistic picture, and HODLers should remain confident.
View his twitter thread for the full analysis, and send us your own content using Glassnode data to be featured in our weekly update.
- Follow us and reach out on Twitter
- For on–chain metrics and activity graphs, visit Glassnode Studio
- For automated alerts on core on–chain metrics and activity on exchanges, visit our Glassnode Alerts Twitter
Disclaimer: This report does not provide any investment advice. All data is provided for information purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.