Bitcoin price reached a new all-time high at $35,776 on Binance on Jan. 6. Following the explosive overnight uptrend of Bitcoin (BTC), on-chain analysts are generally optimistic about the short-term trajectory. While many agree that the rally is beginning to show signs of overheating, it is not overbought just yet.
The major catalyst behind Bitcoin’s strong rally has been the continuous increase in buyer demand on Coinbase. Throughout the past week, Coinbase, the largest cryptocurrency exchange in the United States, saw premiums of around $100. This means that compared with Binance and other major exchanges, Bitcoin has been trading at a higher price on Coinbase. It could indicate a growing demand for Bitcoin from high-net-worth investors and, potentially, institutions.
Bitcoin strongly rallied overnight, recording a 10% gain within merely 10 hours. After the latest rally, on-chain analysts have said that BTC likely still has some room to rally further, considering that various on-chain indicators show the market could become more overheated if it follows previous bull cycles.
The short-term bull case for Bitcoin
Willy Woo, an on-chain analyst and the creator of Woobull, said the ongoing Bitcoin rally is “warm” but is not overheated just yet. Woo showcased the Bitcoin Network Value to Transactions Ratio, or NVT, price chart with premium, highlighting that the current rally has firepower for another leg up, based on previous peaks in 2013 and 2017.
Bitcoin NVT is measured by dividing the market capitalization of Bitcoin by the daily volume of transactions processed on the blockchain in U.S. dollars. The indicator is typically used to determine whether Bitcoin is overvalued or undervalued at the given time. Woo said that the higher speculative premium in the spot market, which occurs due to real buyer demand, is another indicator that the rally is not overheated just yet:
“This is how much ‘speculative premium’ we have right now compared to similar phases of the prior 2 bull markets. […] Notice the higher than normal speculative premium in 2018–2019 when BitMEX led the rise of derivatives dominance, later tamed by spot dominance as Michael Saylor led the charge on spot buying.”
Analysts at Glassnode found that the MVRV Z-Score indicator is signaling the same levels seen in the 2017 Bitcoin bull market. The MVRV indicator is typically utilized to evaluate whether Bitcoin is overvalued or undervalued compared with its “fair value.” If the market cap of Bitcoin is significantly higher than its realized value, which is the valuation of BTC calculated based on where investors buy it, it has historically marked a peak of a rally.
Currently, the Bitcoin MVRV Z-Score indicator is still far from indicating a market top in comparison with 2017. Glassnode analysts explained that the MVRV Z-Score indicator reached five and is now at “the levels of the main bull market of 2017.” But the analysts also explained that “In 2017, $BTC made…