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Breaking News: Coinbase Confirms DOJ Investigation Following Major Security Incident

Even Bitcoin Fundamentals Are Hinting At a Significant Correction Ahead

Tony "The Bull" Severino
Tony "The Bull" Severino
1 year ago
4 mins read
bitcoin fundamentals hint correction

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Bitcoin just had its largest 48-hour pullback since May 2020, back when the asset’s halving took place. The drop in price has the cryptocurrency now trading below a key fundamental level. A deeper dive into other Bitcoin fundamentals may be hinting that a more severe correction that may have only just started.

Here’s what the cryptocurrency’s underlying network metrics are saying about what’s about to come in terms of price action across the crypto market.

Bitcoin Energy Value, Production Costs, and Hash Ribbons Potentially Signal Deep Downside

Technical analysis across any and all assets is exactly the same: open up a chart, check out the candle structure, and look for any patterns or signals. But when it comes to cryptocurrencies, fundamental analysis is dramatically different.

Fundamental analysis is based on two main concepts: qualitative analysis and quantitative analysis. Qualitative analysis comes down more to if you like a coin’s ticker, or if you prefer a Justin Sun against a Vitalik Buterin, for example.

In terms of quantitative analysis, rather than reviewing company revenue reports for tips on stock valuation changes, crypto analysts look at on-chain data and other barometers that measure the health of the underlying blockchain network.

In Bitcoin, this includes how much BTC is held in wallets or on exchanges, metrics like energy value and production costs, hash rate, difficulty, and network-to-transaction ratios.

These fundamentals unique to Bitcoin and crypto make things a bit more tricky, but thanks to contributions from the likes of Willy Woo and Charles Edwards, these metrics have been turned into TA tools.

bitcoin btcusd energy value

BTCUSD Daily Energy Value 2016 - 2020 Comparison | Source: TradingView

By adding these metrics to Bitcoin price charts, it can reveal some compelling signals. The chart above depicting Bitcoin’s energy value shows the first major weekly close below the indicator after quickly poking above it. The last time the cryptocurrency peeked its head above this level then abruptly fell below, was in June 2019, and it signaled a top.

Comparing the past bear market turned bull with whatever is currently going on in crypto, shows a similar initial pump from the bottom that got overheated too soon. The next time Bitcoin went slightly above this metric on weekly timeframes, the cryptocurrency had a 40% post-halving selloff.

This year’s halving came and went, but no death spiral ever arrived. However, energy value is just one signal that is suggesting it could still be coming.

Related Reading | Why Are Bitcoin Miners Moving An “Unusually” Large Amount of BTC?

The cost of producing each BTC is now above the market price the cryptocurrency is trading at. When this happens, miners are better off buying – so instead, they sell.

The post-halving death spiral last time around was due to capitulating miners. Rising fees may have staved this off for some time, but miners have begun moving an “usually” large sum of BTC to exchanges.

The Hash Ribbons have started turning down once again, and when they do, it signals that such a capitulation event is taking place. Past instances of this, line up with the recent Black Thursday bottom, and the 2018 bear market bottom. It also matches the last post-halving death spiral, and it looks a lot like what’s about to happen next.

bitcoin btcusd hash ribbons cost of production

BTCUSD Daily Production Cost & Hash Ribbons 2016 - 2020 Comparison | Source: TradingView

NVT Ratio Demonstrates How Far A Drop In The Cryptocurrency Could Go

Finally, the last fundamental signal in Bitcoin that things aren’t looking so hot in the short-term, is the NVT ratio. NVT stands for network-to-transactions. This ratio compares Bitcoin’s price in relation to the total value being transacted across its network.

NVT recently got hot, similarly to the February 2020 peak, the June 2019 top, right before the drop to Bitcoin’s bottom, and before that when the asset hit $20,000. Now, it is back, and it’s no longer red.

bitcoin btcusd fundamentals nvt

BTCUSD Daily NVT Ratio Past Top Comparisons | Source: TradingView

When prices drop and NVT ratio turns back to black, some type of drop has followed. The furthest back was a 70% collapse from $20,000 to $5800 in February 2018. Bitcoin is currently showing a correlation to that particular bottom when compared to the DXY Dollar Currency Index.

The next time this tool triggered, Bitcoin fell over 50% to $3,200 and met what is hopefully the bottom. Next, was in June 2019, and although it took until December to get there, Bitcoin once again bottomed after a 53% drop.

2020 kickstarted a fast recovery to $10,000, but even quicker the cryptocurrency plummeted 62% to $3,800 on Black Thursday. Now, Bitcoin went back above $12,400 where it may have topped again according to the NVT ratio. But the question is – how deep does this drop go?

Related Reading | This Monthly MACD Bearish Divergence Warns Of Imminent Bitcoin Crash

Taking the four catastrophic collapses, and averaging them out comes to a 58% fall. A dump of that magnitude would take the cryptocurrency back to roughly $5,200. However, given the pandemic, the risk of the coming election, and the aforementioned ominous comparison to the DXY index, there is one more important thing to pay attention to.

According to the NVT ratio, Bitcoin tops out when the indicator turns red. It bottoms when it turns green. The only time the cryptocurrency has turned green since the $20,000 peak was when the crypto asset plunged from $20,000 to $5,800.

Could the latest sighting of red, give us the first glimpse of green before things move up again? And it could it all be due to the comeback of the greenback?

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Tony "The Bull" Severino
Tony "The Bull" Severino

Tony "The Bull" Severino

Tony "The Bull" Severino, CMT, is a distinguished figure in the cryptocurrency analysis sector, renowned for his in-depth technical expertise and innovative approach to market trends. As the Head of Research at NewsBTC, Tony leads a team dedicated to providing cutting-edge insights and forecasts, helping both novice and experienced traders navigate the complexities of the crypto market.
A seasoned Chartered Market Technician, Tony's prowess in identifying and capitalizing on market patterns is unmatched. His academic and professional journey in market analysis has firmly established him as a leading authority in technical trading strategies. Tony’s approach is heavily influenced by the principles of Elliott Wave Theory, a method known for its rigorous assessment of investor psychology and price movements.

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Beyond his role at NewsBTC, Tony is the visionary founder of CoinChartist.io, an educational platform aimed at demystifying the nuances of cryptocurrency trading. CoinChartist.io serves as a valuable resource for traders seeking to enhance their technical analysis skills. The platform offers a range of learning tools and resources designed to empower traders with the knowledge to make informed trading decisions.

In addition to his educational initiatives, Tony is a prolific author and a dominant voice in the crypto community. He writes the CoinChartist VIP newsletter, a weekly dispatch that has become a staple among crypto enthusiasts, revered for its insightful analysis and actionable trading advice. This newsletter has consistently ranked as a best-seller on SubStack, boasting thousands of subscribers who rely on Tony’s expertise to guide their trading strategies.

Tony is also celebrated for his literary contributions to the field. He is the author of the highest-rated Crypto Trading Journal on Amazon.com, a testament to his ability to communicate complex trading concepts in an accessible manner. This journal is widely regarded as an essential tool for traders aiming to track their progress and refine their strategies.

Before his ascent in the financial analysis world, Tony honed his skills in journalism. His background in this field has endowed him with a unique ability to present intricate market dynamics in a clear and compelling manner, making his insights highly sought after by a broad audience that ranges from casual readers to professional traders.
His professional affiliations underscore his commitment to excellence and continuous learning. As a partner of Elliott Wave International and TradingView, Tony collaborates with other leading experts to enhance his knowledge and skills. His active membership in the CMT Association further aligns him with the highest standards of industry practices and ethics.

Tony’s nickname, "The Bull," aptly reflects his aggressive and optimistic outlook on the cryptocurrency markets. His forecasts often anticipate significant upturns, earning him a reputation for bullish predictions that have frequently led to lucrative outcomes for those who follow his advice.

In summary, Tony "The Bull" Severino, CMT, is more than just a technical analyst; he is a mentor, educator, and innovator whose influence in the cryptocurrency space continues to grow. His dedication to advancing the understanding of market forces and his commitment to providing high-quality, reliable analysis make him a pivotal figure in the world of cryptocurrency trading.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality
Created by industry experts and meticulously reviewed
The highest standards in reporting and publishing
How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

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