Bitcoin (BTC) stands at the start of a “new regime” after its early 2023 price gains, and next year will prove pivotal.
That is the opinion of Charles Edwards, founder of quantitative Bitcoin and digital asset fund, Capriole Investments.
As investment behavior around Bitcoin recovers in line with network fundamentals and price action, Edwards, perhaps like many other institutional professionals, is gearing up for an explosive period of growth.
The jury may still be out on whether the bottom is in for BTC price, but for long-term investors, the time to allocate is just beginning, he argues.
In an extensive interview with Cointelegraph, Edwards reflects on the prospects for Bitcoin and the crypto industry in the coming years and whether the 2023 rebound really has legs.
Looking ahead, next year’s block subsidy halving will be especially important, as Bitcoin becomes, in his words, the “hardest asset in the world with certainty.”
Cointelegraph (CT): Bitcoin’s NVT metric is now at two-year highs. You said this is “showing indications of value normalization and the start of a new market regime.” What is NVT and why is this a big deal?
Charles Edwards (CE): NVT is often referred to as the Bitcoin version of a “PE Ratio” – a simple yardstick for relative value of the network. NVT = Network Value to Transaction Value. It is the ratio of Bitcoin’s USD market capitalization to the 90-day average USD transaction volume that flows through on-chain Bitcoin transactions.
The reasoning is simple. If Bitcoin’s network is used to settle a lot of transaction value, then the network should be worth more. So, when NVT is relatively low, it means the market is undervaluing Bitcoin versus the value of transactions it is securely settling.
One way to identify the relative value of NVT is using Dynamic Range NVT; this applies two-year Bollinger Bands to the NVT ratio. When NVT hits the lower band, Bitcoin has historically been very cheap (a better value buy); when it hits the top band, it has been relatively expensive (a time to manage risk).
Bitcoin spent most of the second half of 2022 in the $16-20,000 region, and during this time it was trading at the lower NVT band — a signal for great long-term value. As of February 2023, NVT has broken out above fair value. This can be a signal that we are in a new regime, the early stages of a new bull market. However, as of writing, NVT is fast approaching the overvaluation band. We are not there yet, but we could be in for…
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