Key Points
- Bitcoin’s strong thermo cap ratio indicates robust investments into the network.
- Metrics suggest Bitcoin’s overvaluation and potential correction due to high transaction volume and unrealized profits.
Bitcoin [BTC] experienced a 3% increase in the 24 hours preceding the press time, trading at $71.1k. However, it faces resistance at the $71.4k zone. The recent lack of trading volume implies a potential for another range formation.
Despite the lower timeframe price action lacking a bullish spark, the higher timeframes remained bullish. Certain metrics indicate that Bitcoin has strong network fundamentals, but there’s a question of whether BTC might be overvalued.
Strong Investment in the Bitcoin Network
CryptoQuant CEO Ki Young Ju stated on X (formerly Twitter) that Bitcoin was not overvalued based on network fundamentals. The Thermo Cap metric, which is the cumulative value of all Bitcoin mined so far, was high, indicating strong network fundamentals.
The Thermo Cap ratio, which divides the market capitalization of Bitcoin by the Thermo Cap, has been trending higher in the past eight months but is still far from the previous cycle highs. Hence, it is probable that the current Bitcoin prices might not mark the end of the bull run.
Time to Book Profits on Holdings?
The Net Unrealized Profit/Loss metric was above 0.5, a situation that typically occurs during a bull run. With many holders in profit, it suggests that they have a good reason to book profits.
Although Bitcoin hasn’t reached a value above +0.7, which usually comes around the cycle top, there’s a possibility of a sharp correction. Past bull runs have seen sharp retracements of 20% or more, followed by a quick recovery.
The Network Value to Transactions, which is the market capitalization divided by the transacted volume, has trended higher in recent months. This suggests that compared to the network’s ability to transact BTC, it is overvalued. However, this doesn’t necessarily signal an impending correction.
Bitcoin is increasingly seen as an inflation hedge as well as a transaction network, with prominent examples such as Michael Saylor and MicroStrategy. The rising NVT ratio might be reinforcing this idea, rather than indicating that BTC is overvalued.
