On-chain data shows the Bitcoin NVT Golden Cross has neared the overvalued zone recently, a sign that a drawdown could be coming.

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An analyst in a CryptoQuant post pointed out that the BTC NVT Golden Cross has recently increased. The “Network Value to Transactions (NVT) ratio” is an indicator that measures the ratio between the market cap of Bitcoin and its transaction volume.

The “transaction volume” here naturally refers to the total amount of the asset that investors are moving around on the blockchain. The NVT ratio can be viewed as a comparison between the asset’s value (the market cap) and the blockchain’s ability to transact coins.

When the indicator is high, the market cap is higher than the cryptocurrency’s volume. Such a trend can indicate that the asset’s price is currently overvalued.

On the other hand, low values imply the market cap is low relative to the network’s ability to move tokens, so the asset’s spot price may be undervalued currently.

The indicator of interest here is not the NVT itself but a modified form called the “NVT Golden Cross.” This metric compares the long-term moving average (30-day) of the NVT with the short-term one (10-day).

Here is a chart that shows the trend in the Bitcoin NVT Golden Cross over the past year or so:

In the above graph, the quant has marked the historical undervalued and overvalued zones for the Bitcoin NVT Golden Cross. It looks like above a value of 2.2, the asset may be considered overpriced, as the cryptocurrency’s price has generally taken a hit when the indicator has entered into this territory.

Similarly, the underpriced condition is defined at values under -1.6, with the cryptocurrency usually finding bottoms whenever the metric has dipped inside this zone.

The chart shows that the NVT Golden Cross has been rising in the last few weeks as the latest leg in the BTC rally has taken place. Earlier in the month, the metric almost touched the overpriced zone, but it declined before fully entering it, as the asset price dropped from above the $31,000 level.

Though the Bitcoin drawdown has been small, the indicator still has a relatively high value as it continues to be at a hand’s reach from the overvalued territory.

It remains to be seen whether the metric will go up again in the coming days and break into the overvalued territory (in which case, the price might observe a top formation) or if it will see further decline.

At the time of writing, Bitcoin is trading around $30,200, down 1% in the last week.

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