Recently Mike Novogratz and others, have stated that the crypto market has reached the bottom and we are approaching a trend reversal. While we are not sure if the latest statements are coming from investors who are “permabulls” or downright objective the NVT ratio can help us assess if we are indeed approaching the end of a bear market.
Worries about a new economic crisis fuel the opinions about a Bitcoin price reversal. Mike Novogratz even announced the eagerly awaited bottom and thus the end of the bear market. Others swear that September has always led to a rise in bitcoin prices.
However, doubt is also present in the market. Not only that such ideas have proved to be incorrect in the past, but the statistics also do not provide the security that during September the cryptocurrency has increased in price substantially.
Eight measurements are not enough to justify the statement “September always leads to a bull market.” As the chart above shows, even the limited data does not confirm such a claim.
P / E – NVT ratio
But when is the bear market for the Bitcoin course over? The simple rule of thumb is: If the Bitcoin price is higher than the MA20 for several weeks, you can once again speak of a bull market. Another indicator can help capture the current market sentiment and articulate how far we are from a bull market. We are talking about the NVT ratio.
The NVT’s basis is defined as the ratio between market capitalization and trading volume. It is a little like the P / E ratio, the buy/win ratio of the traditional stock market. The lower this ratio, the more undervalued the cryptocurrency is regarding its use as a means of payment. The higher the ratio, the less the cryptocurrency is used in the rating. In other words, this might be the beginning of a sustainable wave of adaptation, but, also it can be associated with a bubble formation.
At the moment NVT ratio fits well with previous studies of the MA20 in the weekly chart. In the next scenario, the closing price of each week is shown in yellow, the moving average in a dotted line and in red the corresponding NVT ratio.
In this case, the NVT ratio is very strident. The creator of the rate Willy Woo makes a first moving average over 14 past and 14 future values in his analysis. And how is this relevant?
We can see that the NVT ratio mostly took values below 150. The relationship between 2014 and 2018 dramatically increased. The hype led to overvaluation, and the “hodling paradigm” led to a fall in volume.
According to the data, we can see that the current situation is similar to that of mid-2014. The MA20 in the weekly chart has been tested a few times without success while the NVT ratio ranged between 200 and 350.
While the history does not have to repeat every time the continuous development between 2014 and 2015 is in a downtrend. The price had fallen by more than 60 percent by mid-2014 compared to the all-time high of late 2013. However, following the decrease in 2013 the market was hit by a new drop which led to a price loss of 83 percent by the beginning of 2015.
Why is this relevant, still?
Currently, the price has fallen by 68 percent since the all-time high at the end of last year, so the price loss is similar to the situation in mid-2014.
Furthermore, the NVT ratio suggests that there may still be room for price losses and the bottom has not been reached yet.