Bitcoin has witnessed significant gains recently, registering a 3% increase over the last 24 hours and trading at $71.1k at press time. Though facing resistance at the $71.4k mark, there are strong signs of bullish action in the higher timeframes. The question is – is Bitcoin overvalued at present?
The Thermo Cap metric of Bitcoin, which indicates the cumulative value of all Bitcoins mined thus far, suggests strong network fundamentals. The ratio, calculated by dividing the market capitalization of Bitcoin by the Thermo Cap, has been showing an upward trend over the past eight months. According to CryptoQuant CEO Ki Young Ju, Bitcoin is not overvalued based on this network fundamental.
The Net Unrealized Profit/Loss metric is another useful tool to assess Bitcoin’s potential overvaluation. Currently above 0.5, this metric reveals the majority of investors are in profit – a typical occurrence during a bull run, giving investors a solid reason to book profits. However, a value above +0.7 usually indicates an approaching cycle top and potential for a sharp correction.
The Network Value to Transactions, which measures the market capitalization divided by the transacted volume, has continued to rise over the recent months. This reveals that Bitcoin may be overvalued compared to its ability to transact BTC; but it may not necessarily lead to a correction. With entities like Michael Saylor and MicroStrategy viewing Bitcoin as an inflation hedge rather than a transaction network, this rising NVT ratio may only reinforce this view rather than indicating Bitcoin’s overvaluation.