Jurien Timmer, Director of Global Macro at Fidelity, recently claimed that bitcoin could be “cheaper than it looks”. Analysis of some on-chain data metrics suggests that the coin’s true valuation could be much higher than its current price.
Valuation VS Price
one in Tweet Late Tuesday, Timer shared a chart of bitcoin’s price/network ratio, plotted against its USD value. The price/network ratio is calculated by dividing the price of bitcoin by the total amount transmitted on-chain. It is also sometimes called the NVT ratio.
A high NVT ratio may indicate that an asset is overvalued, while a low NVT ratio may mean it is undervalued. As the director explained, the NVT ratio of bitcoin is now back to the bull market levels of 2013 and 2017 while the price has only returned to the levels at the end of 2020.
“Valuation is often more important than price,” he said.
The director also included a chart of prices plotted against non-zero bitcoin addresses. The price has now moved below the average network address growth curve.
Finally, a measure of bitcoin’s dormancy flow indicated that the asset is technically oversold. The inactivity flow looks at the average number of “coin-days” destroyed with each transaction – in other words, how long the coins remain dormant before they run out again.
The metric has now fallen to its lowest point since 2011, meaning coins are being sold relatively quickly after the move.
Allegiance: Bullish During Bears
Fidelity has long been known to be extremely bullish on bitcoin. The asset manager recently announced that it will allow clients to include bitcoin in their 401(k) retirement accounts. However, he quickly came under scrutiny from politicians for this move.
In a report in January, Fidelity argued that bitcoin is different from all other crypto. While it views bitcoin as a monetary commodity, it finds other assets such as ether to be similar to venture investments.
However, in the short term, the crypto market as a whole has taken a beating – as has the industry around it. Widespread fears contributed to a massive bitcoin sell-off over the weekend, leading to cascading liquidations for those using bitcoin-collateralized loans.
One such group facing liquidation fears is Celsius – a crypto lending platform with over $500 million in bitcoin sitting as collateral for loans with Oasis. The company has been forced to freeze all customer withdrawals while they hurriedly explore liquidity to finance debt, including thousands of Wrapped Bitcoin (WBTC).
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