Today’s on-chain analysis for Bitcoin looks at two independent indicators that appear to be generating the same bullish reversal signal. Their confluence could soon lead to a macro bottom for BTC price.
The first is the NVT signal, which is an equally old and effective on-chain indicator. It has been shown to be particularly effective once it has hit the “oversold” area that has historically correlated with Bitcoin’s macro lows.
The second is SSR, which measures the purchasing power of stablecoins versus BTC. It hit an all-time low during this correction and the purchasing power of stablecoins is approaching record highs.
Bitcoin NVTS hits oversold levels
The NVT signal (NVTS) is a modified version of the original NVT ratio indicator. The latter is calculated by dividing the market capitalization by the transferred on-chain volume, measured in USD. In contrast, NVTS uses a 90-day moving average of daily transaction volume in the denominator instead of daily raw transaction volume. This improves the reading to work better as a leading indicator.
The long-term NVTS chart shows the importance of the area near the 17.5 value (red line) from which the indicator is about to bounce. This area provided support during the 2021 summer correction. It had previously reached exactly the same level during the COVID-19 crash in March 2020 and at the bottom of the bear market in December 2018.
Glassnode NVTS diagram
Interestingly, the same area around 17.5 acted as a resistance multiple times in 2015. Even before that, shortly before the second phase of the fierce bull market of 2013, NVTS also found support.
One of the most popular on-chain analysts, @woonomic, calls NVTS the “grandfather” of on-chain indicators, but insists it “still works.”
In a recent tweet, he pointed out that historically it wasn’t very common to see “oversold” on a chart he designed. All periods when NVTS fell to the support (light pink) coincided with BTC price lows (green area).
Source: Twitter
Source: TwitterThe purchasing power of stablecoins is increasing
Should NVTS actually give a bullish signal and the Bitcoin price correction will end soon, an increase in the price of BTC can be expected. To do this, funds must flow into the market with which potential purchases can be made.
Last week, BeInCrypto’s on-chain analysis showed a stablecoin supply ratio (SSR) approaching the all-time low (ATL). In fact, the SSR is at a record low today (green area). This means that the purchasing power of stablecoins (USDT, TUSD, USDC, USDP, GUSD, DAI, SAI and BUSD) increases compared to BTC.
Glassnode SSR diagram
Glassnode SSR diagramWe also notice two (non-ideal) trend lines on the chart. The green uptrend line refers to the BTC price, which has been rising since the low in March 2020. The red downtrend line refers to the SSR and has been in effect since July 2019. Note that their decline indicates an increase in stablecoin purchasing power. If the positive correlation between the rising purchasing power of stablecoin and the price of BTC is maintained, we can assume that the two trends will continue.
The importance of the green area in the graph above is also highlighted by the analog stablecoin purchasing power chart created by two on-chain analysts @_checkmatey_ and @permabullnino. In the long-term chart, we see green bars that indicate areas where the purchasing power of stablecoins has increased.
We have highlighted periods of strong growth in this trend in purple to show the correlation with the BTC price. This is negative. Periods of sharp increases in stablecoin purchasing power have historically coincided with significant corrections in Bitcoin price.
Source: CheckOnChain
Source: CheckOnChainThis is no different during the current correction, which points to the second largest surge in stablecoins’ purchasing power. The current trend ranks second this year after the deeper correction from May-July.
The comparison of the two indicators of today’s on-chain analysis gives a strong indication of the thesis that Bitcoin is about to reach a macro bottom. Historically, both indicators were bullish signals at their current values, after which the Bitcoin price rose dynamically.
Click here to view BeInCrypto’s latest Bitcoin (BTC) analysis.
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