- Bitcoin’s MVRV ratio above 3.7 signals overvaluation, suggesting a market correction could be near.
- Crypto Fear & Greed Index 83 shows extreme market optimism, often indicating a market top and the need for caution.
- Rising Coin Days Destroyed and decreased new money flow suggest long-term holders are selling, signaling a possible price dip.
As the price of Bitcoin hits new ATHs and is currently trading at $93,373, experts look at various on-chain metrics to determine if one should sell or hold the asset. CryptoQuant, an analytical platform, has highlighted several indicators which imply that one should be careful when prices are at these rates. As the market looks to be getting over-heated, the following are some of the indicators that investors should keep in mind before they jump into the next trade.
One of the most important is the MVRV ratio, which indicated the market top when it reaches 3.7. The MVRV ratio measures the market capitalization of Bitcoin to the realized capitalization which depicts the average cost of coins last exchanged. Usually this ratio is above 3.7 and it means that the market is overvalued and the correction may happen soon.
Also, the Crypto Fear & Greed Index, which is a general measure of investor sentiment, is also currently 83. This index reflects the level of greed in the market and when it gets to this level usually means that investor sentiment is too high. Although the market continues to rise during extreme greed, it is important to note that this kind of market usually leads to a market top thus experienced traders should exercise caution.
Source: Alternative.me
Bitcoin’s Capital Inflow Impact
Another one is the amount of money that is coming into the market. Bitcoin’s price strength is directly associated with fresh capital inflows and there are no new investors, the price may fall. Realised Cap Growth (365D) should be employed in assessing this indicator which gives a comparison of the amount of new capital coming into the market to that of the previous year.
Source: Chart by CrypotQuant
When Bitcoin which has been inactive for some time now starts to trade, it is usually a indication that the long term holders are selling their coins. The increase in the CD Death (Coin Days Destroyed) above 15-20 million is a major warning sign that the market is approaching its peak. This metric measures the number of long term holders who are selling their coins which is a sign of price dip.
Exchange Flow Trends
The third tool used in monitoring is the Inter-Exchange Flow Pulse (IFP). This metric measures the movement of Bitcoin between exchanges and especially derivative exchanges. When the market has a major change in the sentiment that drops to the bearish territory, this is a sign that big players are getting ready for the bear market, which means that bull market can be over.
Source: Chart by CryptoQuant
To this end, investors need to pay close attention to these metrics as Bitcoin breaks new ground to decide whether to stay for more profits or take some profit in anticipation of a reversal. Given these signs of caution it is perhaps more important than ever to approach this market with an informed decision making process.
