Bitcoin NVT indicator shows that the bull market is still in the middle?

Overnight, Bitcoin (BTC) continued its rebound momentum after a short break at 41k, and regained the lost ground at 42k. The average opening cost price range of my real new positions during the bull market of 2021-2022 is 43-44k. In other words, if I just entered the currency market in 2021 and started to build a base position, the loss of the base position is now narrowing significantly, and it will soon turn losses into profits.

I have shared my actual position building dot matrix charts for various time periods in the Planet Insider post, and I will no longer share them publicly in the official account. Friends who have seen those pictures can clearly see that I have had some "discipline-breaking" large-scale position increases in the 50-55k range, which mainly occurred during the Double Eleven retracement last year, due to over-anxiety to increase positions on dips. This "discipline" is the yellow line of $50,000 and the red line of $60,000 that I drew at the beginning of last year. New readers who don't know can refer to the article "The Red and Yellow Lines of This Bull Market" on 2021/10/17. If you strictly abide by this discipline to increase your position, the execution effect of the Eight Characters should be better than what I did, and the average position building cost should be lower than mine. Now the bottom position should have begun to be at a slightly profitable level, right?

Some people may ask, I entered the market for this bull market, learned the Eight Characters, and worked hard to increase my position for a year, but in the end I only got a small profit (or a small loss)? In fact, I think that the big pie is here in the middle of the sideways market, waiting for everyone to build positions leisurely, which is really conscientious. Imagine if you build positions in the big decline phase - just like I built positions all the way from the top of the mountain at the end of 2017, and then fell all the way, and finally added positions for a year, the price fell 80%, and recorded a loss of nearly 50% - how many people can hold on and not sell at the bottom? On the contrary, if you build positions in the big rise phase, the cost of building positions will rise sharply, and finally be pulled to half of the peak or even higher, and then the bull market will turn into a bear market and fall into losses - assuming that novices who have just entered the market can hardly escape the top - and spend three years in a long bear market at a loss, how many people can withstand the pressure of losses and continue to insist on adding positions in the bear market with the Eight Characters?

Almost none.

There are two kinds of tests for novices. One is a short and sharp decline, which triggers fear. The other is long years of losses, which wear away hope.

For Bitcoin that is trading sideways in the middle of the day, with a maximum 50% retracement, the corresponding position of Bazijue should also have a loss of about 25%, which is really the loss that investors in the cryptocurrency market should be mentally prepared to bear. The sideways movement for a year gave Bazijue enough time to build a position. There was no one-way retracement that would make people lose confidence in building a position, nor was there a one-way rise that would significantly increase the cost of building a position. It was really "just like your gentleness."

Wen Ye met a good person, but I am afraid you will not cherish him. With an unstable mentality, sometimes FOMO at high positions, sometimes selling at low positions, after more than a year, the position is empty, most of the funds are missing, and a year of mid-term sideways trading is wasted in vain, and the precious time window and the best opportunity to steadily build positions to welcome the future market are wasted. It is time to reflect on it.

On December 18, 2021, I wrote the article "The Bull Market is Still in the Halftime". At that time, the market was in a state of mourning that "there is no second half at the end of the year". Those who did not listen to the warning in the article "There is No Second Half at the End of the Year" on October 15 and chased highs at 65,000, became discouraged after the market collapsed in mid-December and lost hope of reaching the peak at the end of the year. They jumped back and criticized the judgment that "The Bull Market is Still in the Halftime".

As of the end of January 2022, Glassnode's 4th Weekly Report still concluded that the market was already in a "bear market structure" based on on-chain data and exchange data. The analyst wrote: "If it looks like a bear and walks like a bear, it is probably a bear." In particular, the NUPL (Net Unrealized Profit/Loss) chart clearly suggests that the current market structure is already in the early stages of a bear market. [1]

But just last week, in the fifth weekly report, analysts found different data indicators and gave a similar prediction to what I said a month and a half ago: “The bull market is still in the middle.”[2] The analysts wrote:

“While both Bitcoin markets experienced price declines of more than 50%, the current market appears to have a resilient and persistent layer of HODLers who have remained in accumulation mode through thick and thin. On-chain settlement volume is down from highs but increasing relative to market valuations, suggesting Bitcoin is now closer to ‘fair value’ than a cyclical top.”

The long-short ratio of the futures and options markets it gives shows that shorts are actively betting, so it is very likely to trigger an upward correction in the market and liquidate shorts. The speculation is consistent with the logic of "shorts are the fuel for the rise" that we have said many times before, so I will not elaborate on it here. What I am interested in is that it takes out an indicator called NVT, and based on this indicator, it infers that the bull market has not ended yet.

The so-called NVT is the abbreviation of Network Value to Transaction, which was first proposed by Bitcoin analyst Willy Woo in 2017 [3]. The Network Value here refers to the market valuation of the Bitcoin network, that is, the market value (Market Cap, USD), while Transaction refers to the actual daily transfer transaction volume (Daily Transaction, USD) on the Bitcoin network (on-chain). The NVT ratio refers to the ratio of the two.

The theory of this indicator is that the on-chain transaction volume T reflects the utilization of the Bitcoin network, which reflects the actual value of the network; while the network value NV represents the valuation of the Bitcoin network in the secondary market. This indicator is the ratio of the secondary market valuation to the use value. I think the interesting thing about NVT is that it spans the secondary market and the primary market and reflects the "divergence" between the two markets.

According to historical data[4], when the NVT ratio is in the overvalued range, it is often the peak of the bull market and the beginning of the bear market cycle. This pattern was shown in the two bull markets in 2013 and 2017. Most of the time, the NVT ratio is in the normal range, which means that the market is in a reasonable valuation range. This often occurs when the bear market bottoms out, recovers, and continues into the early and middle stages of the bull market.

Of course, we cannot blindly believe in any single indicator. As I often say, all technical indicators are lagging indicators.

Strategic judgment is often a comprehensive judgment rather than a technical judgment. When the K-line school sees a bear market, we say that the bull market is still in the middle. When the data school sees a bear market, we say that the bull market is still in the middle. When the fundamentals school sees a bear market, we say that the bull market is still in the middle. (Note: The K-line school refers to the school that judges the market trend based on pure price charts such as the 200-day moving average; the data school refers to the school that judges the market trend based on non-price data such as on-chain data and exchange data; the fundamentals school refers to the school that judges the market trend based on external factors such as the Federal Reserve policy and macroeconomic data)

Is the bull market still in the middle? Whether people believe it or doubt it, time will eventually prove whether a forward-looking judgment is correct or not.