Data from on-chain analytics firm Glassnode confirms that on December 21, the Bitcoin network value to signal transaction (NVT) reached levels not seen since April.

Bitcoin activity may not support the $17,000 BTC price
Created by statistician Willy Woo, NVT essentially measures the ratio between on-chain activity and the price of Bitcoin.

The NVT Signal adjusts its readings using a 90-day moving average of daily transaction volume rather than raw data, something Glassnode says “improves” the NVT and allows it to “work better as a leading indicator.”

On December 21, the NVT signal reached 18.58, a level that was last seen as Bitcoin fell in the last days of April. At the time, BTC/USD was trading at just over $40,000.

Fast forward to the end of the year, and NVT is flashing a warning. Even though Bitcoin is worth less than 50% from its April levels, network volume has fallen to such an extent that even the current valuation of $16,800 may not hold.

As Woo explained in describing the NVT ratio on his analytics site, Woobull:

“When the value of Bitcoin’s NVT is high, it indicates that the valuation of its network exceeds the value that is being transmitted through its payment network. This can happen when the network is in high growth and is being valued by investors as a high-yield investment, or alternatively when The price is in an unsustainable bubble.”

Bitcoin NVT signal chart. Source: Glassnode / Twitter
Tale of two NVT signals
However, there is a problem with NVT. As many analysts, including Woo, have noted, the ever-changing nature of the Bitcoin network means that transactions are increasingly moving off-chain.

Related: Bitcoin Price Fails To Reclaim $17K With The Market Unprepared To Go Down

Along with other phenomena, this affects on-chain transactional data to the extent that NVT may result in a very bearish value-to-transactional picture.

This is handled by an addition to the indicator called Dynamic Range NVT (DRNVT). Created by Charles Edwards, CEO of asset manager Capriole, DRNVT uses standard deviations to measure the difference of NVT from the mean. It also provides valuable areas to facilitate the identification of entry points based on its readings.

Currently, DRNVT is in that value area, data from TradingView shows – a major contrast to the standard pattern.

“NVT signal with a dynamic range of fair value should be used with caution,” Edwards warned in an introduction to the index in 2019.

“As with all markets, an asset can remain ‘expensive’ or ‘cheap’ for a long or long time and continue to rise until it becomes more expensive or cheaper.”