Comparing NVT Signals to Market Cycles

Here is a general market theory that I came up with while reviewing some data from Coinmetrics.io.

For this quick analysis I will use the network value to transaction ratio (NVT). This measures the dollar value of crypto asset transactions compared to the overall network value.

Assumptions:

– Dec 2017 was the top of a significant bull market.

– We need to go through a significant bear market in order to go back through another full cycle again

– 2013-2015 cycle data gives us some bench marks to compare to the current cycle

Orange: Top of NVT (Network Valve to Transaction Value)

Green: Top of the Bull Market

Blue: Capitulation of the Bear Market

Easy explanation of the NVT valve:

– NVT Valve increases when:

Price is constant but daily transaction volume in USD is going down

Price is going up but daily transaction volume is staying constant

So you would think that NVT would signal a “top” of a market, but in reality it doesn’t. Lets look at what the data says………

2013 to 2015 Cycle:

If its not clear the solid red line is the transaction volume and the price is the shaded area.

Bull market: Transaction volume followed price closely

Bear market: Transaction volume fell hard while price declined over time

Top of NVT: Large spike in price in a bear market that had unsustainable transaction volume

Current Situation:

In hindsight we dont know if we have seen a full capitulation even yet that would end the bear market.

If the same pattern repeats, we are starting to form a base in transaction volume with some price compression. If could mean that we could see a large spike in price which leads to some excitement but then transactions fall off again like last cycle creating the peak of the NVT ratio and continuing the bear cycle. There is a chance that this theory is wrong and that we slowly go back into accumulation and start another leg up.

Side Note:

Check out the support on the NVT ratio and how it can act as a bull or bear market indicator…..