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Crucial Bitcoin On-Chain Metric Just Hinted at Strong Recovery

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Thu, 2/05/2024 - 12:39
Crucial Bitcoin On-Chain Metric Just Hinted at Strong Recovery
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A critical look at on-chain metrics provides new insights suggesting a potential strong recovery on the horizon for Bitcoin, following the drop below $60,000. The "Bitcoin Fundamental Index" by Swissblock, which is a composite measure of various Bitcoin network health indicators, recently hit what appears to be an inflection point, signaling potential upward movement for Bitcoin's price.

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One of the key metrics to consider is the Short-Term Holder MVRV (Market Value to Realized Value), which currently stands at 0.96. This ratio essentially compares the market value (the current price at which Bitcoin is trading) to the realized value (the average price at which coins were last moved). A value below one typically indicates that short-term holders are holding coins at a loss, which can signal a potential bottom if other conditions align.

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BTC/USD Chart by TradingView

When the STH-MVRV has dipped below one, it has typically been a precursor to a market recovery as it suggests that the selling pressure from short-term holders is waning and could indicate that sellers are exhausted. This exhaustion is further supported by the recent performance of the Bitcoin Fundamental Index, which shows a recovery from lower levels, suggesting increased network growth and investor confidence.

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Looking at the "Bitcoin Fundamental Index" chart, there have been significant spikes in the index correlating closely with increases in Bitcoin's price. The index itself measures several aspects of network health, including transaction volume, wallet activity and other undisclosed proprietary indicators that aim to gauge the overall sentiment and fundamental strength of Bitcoin.

The current index value is nearing the higher end of its recent range. Historically, such patterns have indicated strong bullish sentiment building up, especially when combined with a low STH-MVRV.

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