Matrixport View_Market #2

Matrixport Research

Executive Summary

In this report, we analyzed 6 main price indicators and used data as of 17 June 2020 to provide our insights. The market trend is as followed – Short to medium term indicators are displaying bearish signals, , mainly derived from NVTS indicators, while other indicators showed no obvious trend.A more noteworthy point is, based on our analysis of the logic behind these indicators, we realized there are limitations and invalidity behind these indicators. Overall:

  • NVTS is a short-medium term bull/bear indicator. Current NVTS value is 90, on the upper end of the scale, thus indicating that BTC price is overvalued;

  • MVRV is a short-medium term bull/bear indicator. Current MVRV is 1.63. In general, the value of MVRV is not considered as a high point, but in the short term, MVRV is already at a relatively high point. It is prudent not to use MVRV as a price judgment indicator here;

  • Mayer Multiple is a common technical indicator used in traditional stock market. Mayer Multiple is 1.15, which has been around 1 for a long time without showing an obvious trend;

  • Bitcoin Difficulty Ribbon is a short-term buying indicator, and it is currently compressing. However, considering the impact of halving and wet period, this index is not considered this time.

  • During the timeframe of this report, funding rate has no abnormality, therefore no short-term price signals are provided;

  • Although USDT index is widely used as a indicator for investors to buy the bottom, historical data has shown that it is likely to be an invalid price signal.

Indicator 1 NVTS: Overvalued BTC price

As of 17 June, NVTS value is 90, on the upper end of the scale, thus indicating that BTC price is overvalued. Recently, there has been no abnormality causing any change to the NVTS indicator.

NVTS (Network Value to Transaction Ratio Signal)refers to the ratio of market capitalisation of BTC to 90-days moving average of USD value of transaction on the blockchain. It can be seen as the ratio between market price to its intrinsic value.

Based on historical data (refer to Chart 1), a NVTS value of above 90 indicates there is a market bubble and risk of a crash is higher. A value below 50 means BTC is highly undervalued, and chances of price appreciation is higher.

The NVTS indicator measures the intrinsic value by determining onchain transaction value. The dollar value of transactions on the BTC network measures the level of onchain activity of its users, although this measure doesn’t directly impact the demand and supply of BTC on the secondary market. Instead it affects the price by providing investors an opinion on the underlying fundamentals of BTC. Therefore, from this perspective, NVTS focus on BTC’s function as a medium for transactional activities, and not its function as a storage of value. When measuring the onchain activity of users, NVTS still has the following limitations:

  • The current data doesn’t include figures from the Lightning Network;

  • Consensus algorithms such as PoP (Proof of Proof) can cause the interpretation of the indicator to change greatly. For example, in April 2019, VBK used the PoP algorithm which led to a substantial increase in the transactions on the blockchain, causing the BTC network to jam, resulting in the inability of transaction activities to reflect the true use value of BTC;

  • The reorganisation activities of wallet in large exchanges can also cause the transaction volume to increase greatly, thus distorting the indicator. For example on 17 June 2019, Binance underwent a standard reorganisation of its wallet, with the blockchain network registering a transfer of c.440,000 BTC.

Therefore, when using the NVTS indicator, one must frequently observe the current market dynamics and understand the underlying reasons behind the change in the indicator.

Indicator 2 MVRV: Unclear

As of 17 June, MVRV is 1.63. In general, the value of MVRV is not considered as a high point, but in the short term, MVRV is already at a relatively high point. It is prudent not to use MVRV as a price judgment indicator here.

MVRV (Market Value to Realized Value Ratio) is the ratio of market value of BTC to its realized value. Realized value aggregates all UXTOs and assign a cost price to each UXTO based on the time the said UXTO is last moved. MVRV is an indicator that is derived directly from the demand and supply within the secondary market, it is a multiple that measures the average market profit made. It assumes most investors have a psychological range of expected profit multiple, once the multiple is high enough, investors will cash in on their profits causing a selling pressure on the prices. The underlying logic is applicable to all financial products (including traditional financial products), with investors having varied level of expected profit multiple for different products.

Based on historical data, MVRV is a metric used to assess BTC’s market cycles over time. A MVRV value lower than 0.8 reflects the bottom in the bear market while a value above 4 reflects the peak of the bull market.

Realized value (RV) has the similar limitation as NVTS; affected by lightning network and reorganization of wallet by large exchanges. However it has the following advantages:

  • Excludes the impact of BTC lost in the earlier days on the value calculation – these lost BTC are assigned low prices, resulting in minimal impact on the realized capitalisation;

  • Reflects the market participants’ view of BTC value throughout the different stages, and represents total invested capital in BTC;

  • Through the process of transfer, newly generated UTXOs will replace the original UXTOs. This renewal cycle allows for a more accurate representation of the circulation value of BTC. For example, the new UXTO created from the transfer of UXTO generated in 2012 will increased the realized value while new UXTO from the transfer of UXTO generated in the bull market will decrease realized value.

Another key limitation of MVRV is that is a simple division of market value over realized value, and exclude holding duration. Investors’ expected profit multiple should be affected by the length of holding, as the opportunity cost of holding increases over time.

One interesting observation is that the peak of MVRV is gradually declining, indicating a lower expectation of profits. There two possible explanation: (1) the risk of “zeroing” is lower therefore risk premium required by investors has decreased, (2) the average holding period across the market has shortened.

Indicator 3 Mayer Multiple: Unclear

As of June 17, Mayer Multiple is 1.15, which has been around 1 for a long time without showing an obvious trend.

Mayer Multiple is the multiple of the current BTC price over the 200-days moving average of the price. In technical analysis, prices are generally considered bullish (or positive) when they are above the long-term average , and bearish (or negative) when they are below the moving average. Mayer Multiple is obtained by analogy logic.

A Mayer Multiple of above 1 indicates that BTC price is above the 200-days moving average and the start of a bull market. A multiple below 1 indicates bear market. Based on historical calculation, a Mayer Multiple above 2.4 (only 8% of the time) hints that a bubble is forming.

Indicator 4 Bitcoin Difficulty Ribbon: Unclear

As of June 17, The Difficulty Ribbon is becoming narrower. However, considering the impact of halving and wet period, this index is not considered this time.

Bitcoin Difficulty Ribbon consists of simple moving averages on mining difficulty. When the ribbon compresses, or flips negative (when short term moving average nears or moves under the long term moving average), these are the best times to buy BTC.

Logic behind Bitcoin Difficulty Ribbon: When BTC is mined, miners will sell part of it to cover the cost of their operations, theoretically causing downwards pressure on BTC prices. Within the mining community, miners can be split by the strength of their mining capabilities. Compared to stronger miners, weaker miners have to sell a bigger portion of mined BTC to support their operation. Once the profit from selling all the BTC mined is unable to offset their mining cost, weaker miners will cease their operations, resulting in lower hashing power and network difficulty (ribbon compresses or flips negative). The market will be only left with miners with stronger abilities. These miners are likely to sell less mined BTC while those with strong balance sheet might even keep all their mined BTC and await for the opportunity to sell when BTC are higher. Therefore, when the ribbon compresses or flips, this indicates the supply of BTC in the secondary market will be reduced, which is conducive to the increase in BTC price.

The hidden assumption behind Bitcoin Difficulty Ribbon is the sales of BTC from miners can cause sufficient downwards price pressure. This also assumes that BTC held by miners represent a high percentage of supply of BTC in the secondary market.

This indicator was more effective in the earlier days for BTC. With upcoming BTC halving events and the deepening of the market, this indicator’s predictive ability will become weaker as the proportion of newly mined BTC to current supply of BTC will become smaller, lessening its impact on BTC prices.

Indicator 5 Funding Rate:Unclear

Funding rate is a concept that exist in the perpetual futures market. To anchor the spot price (also known as index price) to the perpetual contract price, exchanges use a funding rate as a mechanism to ensure periodical convergence. When the market price of the perpetual contract is higher than the index price, funding rate is positive, the buyer will pay the funding fees (Position value * Funding rate) to the seller. On the contrary, when funding rate is negative, the seller needs to pay the funding fees to the buyer.

Funding rate has a short history (started in Oct 2018). So far, there were only 6 occasions that the funding rate was abnormal, and each time provided relatively accurate short-term buying/selling opportunities. Based on historical data (shown below), when the absolute value of funding rate is above 0.25% (abnormal), it represents a good buying/selling opportunity. When the value is negative, it represents a buying opportunity, vice versa.

At the moment, funding rate has not shown any abnormality.

There two possible explanation behind the impact of funding fees on BTC prices:

  • Funding rate represents market sentiments. When funding rate is relatively high, it implies that the market is crazy and a drop in price is imminent. When the rate is low, it implies that the market is more fearful and a turnaround in market (from down to up) is around the corner.

  • When funding rate is relatively higher (positive), this affects trading in two key ways: (1) The number of willing buyers of the perpetual future contract drops as holders need to pay high funding fees, (2) The number of willing sellers of perpetual future contracts increase as they are able to receive high funding fees daily. Even if whole market continues to rise, the high interest rate will offset part of the losses. For miners, these high funding rate period provides an excellent opportunity for them to sell contracts as they can both hedge their positions, but also earn funding fees.

Indicator 6 USDT Index: Invalid Price Indicator

The main demand for USDT comes from fiat currency users who want to enter the cryptocurrency market. USDT supply is determined by Tether. Theoretically, when USDT exhibits large premium (assuming short-term supply of USDT is unchanged), this signify the greater willingness of investors to enter the market. This is a short-term bullish indicator for prices.

However, based on analysis of the recent data, the current situation doesn’t seem to reflect the trend. There is a weak correlation between change in USDT index against change in BTC price (ρ=0.16).

Therefore, investors should exercise caution when utilizing this indicator.


Matrixport provides this analysis as general information only. Matrixport accepts no responsibility for the accuracy or completeness of any information herein contained and Matrixport shall not be responsible for any loss arising from any investment based on any forecast or other information herein contained. The contents of this materials should not be construed as an express or implied promise, guarantee or implication by Matrixport that the forecast information will eventuate. The cryptocurrency market is highly volatile. Buying, selling, holding, or investing in cryptocurrencies or related product carries various risks and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before participating in the cryptocurrency market. Matrixport is not acting as a financial adviser, consultant or fiduciary to you with respect to any information provided. Any information available here is “general” in nature and for informational purposes only.