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Bitcoin, Ethereum Missing volumes to justify caps, says Santiment

Data from Santiment show both Bitcoin as well as Ethereum currently lacking the trading volume to their market capitalization to justify.

Bitcoin and Ethereum NVT ratios are both bearish at the moment

Both the Bitcoin and Ethereum networks have seen an increase in activity this year, according to on-chain analytics firm Santiment. The relevant indicator here is the Network Value to Transaction (NVT) ratio, which measures the ratio between a crypto’s market cap and its transaction activity.

Traditionally, trading volume is viewed as the transaction activity of a coin, but Santiment’s NVT ratio works differently. Rather than dividing market cap by volumes, this version of the metric uses “daily circulation,” a measure of the total number of unique coins that have seen some movement over the past day.

The benefit of the Circulation Indicator is that transactions where the same coins bounce through multiple wallets are only counted once for measurement, whereas the normal trading volume metric would have counted them as many times as they were transferred. This helps avoid duplicate transactions and gives a more accurate idea of ​​market activity.

Well, what the NVT ratio tells us is how the market cap of Bitcoin and Ethereum currently compares to activity on their respective networks. High readings of the metric suggest that volumes are currently much lower than the cap, and therefore the coin may be overvalued at the moment. On the other hand, low readings indicate that the price may be undervalued.

Well, here’s a chart showing where the NVT ratio has priced Bitcoin and Ethereum over the past few years:

Bitcoin, Ethereum Missing volumes to justify caps, says Santiment, Crypto Trading News

The value of the metric appears to have been declining for both coins recently | Source: Santiment

As the chart above shows, the NVT Ratio for Bitcoin has been declining since August 2022. This means that circulation on the BTC network has remained fairly low compared to the crypto’s market cap over the past few months.

For Ethereum, the indicator’s value alternated between bearish and bullish throughout 2022, but the coin appears to have ended the year overvalued as circulation was bearish in December.

If the cryptos continue to be overvalued according to the NVT, then a correction imminent. “The penetration rate of both networks needs to pick up in 2023 and this week will show when the non-holiday days start,” explains Santiment.

BTC price

At the time of writing, Bitcoin’s price is hovering around $16,700, down 1% over the past week.

Bitcoin, Ethereum Missing volumes to justify caps, says Santiment, Crypto Trading News

It looks like BTC has surged in recent days | Source: BTCUSD on TradingView Featured image by mana5280 on Unsplash.com, charts by TradingView.com, Santiment.net

Source: Crypto News Deutsch

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