Report Summary
The report presents an analysis of on-chain indicators in the cryptocurrency market and delves into varied metrics such as the Network Value to Transfer Value (NVT), Market Value to Realized Value (MVRV), and the relative market capitalizations of Ethereum, stablecoins, and ERC-20 tokens. Metrics that point to the health and trajectory of Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), and Shiba Inu (SHIB) are particularly highlighted.
Key Takeaways
Understanding Network Value to Transfer Value (NVT)
- Indications from NVT: The NVT metric provides insight into a blockchain’s market value compared to its on-chain transactional activity. An increase in NVT suggests a faster rise in asset valuation compared to underlying network activity, as observed in both BTC and ETH. The report suggests future amplification in underlying activity may ensued following the recent surge in prices.
Appreciating Market Value to Realized Value (MVRV)
- Implications of MVRV: MVRV has been a reliable on-chain indicator of bitcoin market tops and bottoms. High MVRV values signify bitcoin nearing its maximum, while lower values indicate a nearing minimum. Recently, the bitcoin MVRV has risen but remains below traditional levels at 1.8, hinting that current sentiment is quickly surpassing the estimated aggregate cost basis.
Evaluating Market Capitalization Trends
- Observable Trends in Market Capitalization: A clear divergence is witnessed in the market capitalizations of stablecoins, ETH, and ERC-20 tokens. ETH and ERC-20 tokens have seen an increasing valuation compared to stablecoins which could suggest capital shifting from stablecoins to ETH and ERC-20 tokens. Moreover, the falling market cap ratio of ETH to ERC-20 tokens might indicate an appetite for riskier returns among investors, potentially due to optimism surrounding the launch of a bitcoin spot ETF in the U.S.
Inspecting the Performance of Bitcoin and Ethereum in Comparison to Meme Coins
- Performance of “Meme” Coins vs BTC and ETH: The report highlights the relative underperformance of “meme” coins like DOGE and SHIB compared to BTC and ETH. The ratio of the combined market values of BTC and ETH to those of DOGE and SHIB is 60x, the highest in over a year, implying an increasing investor preference for assets with solid fundamentals.
Examining On-Chain Fundamental Indicators
- On-Chain Fundamental Metrics: The report emphasizes the significance of inspecting on-chain fundamentals, like the growth in new addresses holding native units and user transaction fees. While address growth has occurred, the uptick is not significantly notable. Furthermore, transaction fees on both Bitcoin and Ethereum have noticeably risen, with Bitcoin users paying over $11 million in transaction fees on November 16th, the highest since December 2020.
Actionable Insights
- Monitor the NVT Ratio: The increase observed in both BTC and ETH’s NVT could be worth watching over time to understand whether these assets see a spurt in underlying activity in response to the surge in prices.
- Inspect MVRV Levels: The increase in bitcoin’s MVRV, while still below historical levels, suggests the need for attention to market fluctuation trends relevant to bitcoin price due to its renowned accuracy in indicating market tops and bottoms.
- Diversify Focus: The increasing valuation of ETH and ERC-20 tokens when compared with stablecoins might indicate the worth in expanding investment focus beyond traditional safe assets.
- Observe Meme Coin Movements: The underperformance of “meme” coins as compared to BTC and ETH could promote observation of investor behavior and preference trends within the digital assets market.
- Gauge On-Chain Fundamentals: On-chain indicators such as new addresses and transaction fees can provide usable insights on network usage and adoption-related trends within the crypto market.
