In this post you’ll learn the tools and tricks, to find out if now is a great time to buy Bitcoin. The best time to invest in Bitcoin was in 8-10 years ago. Is today the second best?
3 Tools to Help Decide When to Invest in Bitcoin
- NVT Ratio and NVT Signal
- Mayer Multiple
- MVRV Ratio and Realized Cap
First a note on the tools presented in this post. They’re all experimental. Use them with this in mind. The most robust way to use them is probably in subtracting manner. That is, make sure you know when not to buy. Not buying the top of a Bitcoin bubble should the first objective to clear. Buying at a great price comes second.
1. The NVT Ratio
The NVT ratio is a tool to detect Bitcoin bubbles and buying opportunities. How can we use it to determine when to invest in Bitcoin? The NVT ratio is a measure of the market value of Bitcoin (Network Value), divided by the amount of money flowing through the Bitcoin network (Transaction Volume). The idea is that money flowing through the network is an indicator of “underlying value”. When this throughput is low relative to the market value of Bitcoin, we might be in bubble territory (don’t buy). When a lot of money flows through the Bitcoin network relative to the market value, it might indicate a buying opportunity!
- Live chart: NVT ratio
The NVT Signal is a more responsive version of the NVT Ratio. In general, it’s more reliable as a predictive buy or sell indicator than the NVT.
- Live chart: NVT Signal
How to Use the NVT to Determine When to Invest in Bitcoin
- To avoid buying the top of Bitcoin bubbles, don’t buy at NVT Ratio and Signal levels above 95.
- As can be seen below, when both the NVT and NVT Signal falls to around 50, it’s seems to present a great buying opportunity.
Learn more about the NVT ratio and NVT signal (NVTS) or check out my interview with its creator, Willy Woo.
2. Bitcoin Mayer Multiple
This Bitcoin Mayer Multiple is a tool that measures the current price of Bitcoin against its long-term trend (200 day moving average). It is a ratio between the current Bitcoin price and the 200 day moving average.
- Live chart: Bitcoin Mayer Multiple
How to Use the Bitcoin Mayer Multiple
Like with the NVT ratio, the more robust approach is probably to be clear about when not to buy Bitcoin. Looking at the chart below, it’s clear that investing in Bitcoin when the Mayer Multiple is above 2, is a dangerous game.
Bitcoin buying opportunities seems to present themselves, from the point when the Mayer Multiple bottoms out (in 2015 around 0.4) and moves on to break above 1.
3. MVRV Ratio – Realized Cap
The Bitcoin MVRV ratio is a tool to bubbles and buying opportunities. It tracks the market cap of Bitcoin against a measure for “fair value”. To do that two inputs is measured:
- Market Cap / Network Value: The market price of all bitcoins in circulation.
- Realized Cap: What what was paid for all the coins in circulation? The price paid for each coin measured from last time it moved on the blockchain. The realized cap is a more conservative valuation of the Bitcoin network.
The MVRV measures the current market value of bitcoin against the realized cap (what people paid for their coins).
When Market Cap drops below Realized Cap, the ratio goes sub 1 (red line). Historically this has been great times to buy.
Summary: When to Invest in Bitcoin
First avoid buying Bitcoin bubbles. Secondly, optimize the price you get.
- Make sure you don’t buy bubble phases. Buying the bottom isn’t easy, focus on not buying the top or bubbles might be a better strategy than chasing a good price. You’ll have much more fun with Bitcoin and cryptocurrencies if you don’t start your adventure with 85% loss (like the current 2017 top-buyers).
- When you made sure you’re not buying in bubble territory, you can start thinking about optimizing the price you buy at.
Why invest in Bitcoin: Should I Invest in Bitcoin?