Market analysis suggests that Bitcoin’s institutional investments had been increasing in the current market cycle compared to the 2017 cycle.
According to metrics on Network Value to Transaction (NVT), Bitcoin’s institutional investments have soared four times in this year’s market cycle compared to that cycle of 2017.
By description, Network Value to Transaction (NVT) is an indicator that describes the relationship between transfer volume and market capitalization. As previously introduced by a renowned crypto analyst, Willy Woo, the NVT model calculates price by multiplying on-chain volume by the 2-year median value of NVT-Ratio-(Market cap / Total on-chain transfer volume).
After recording an all-time high in the 2018 market cycle, both 30-day and 90-day moving averages (MA) of NVT-price plummeted continuously for almost 12 months.
Nevertheless, since the May 2021 market crash that left crypto prices tumbling 50%, these moving averages have been rising, retesting their previous highs of $64,000. These variations in NVT-based pricing results translate to a higher institutional activity level compared to retailers.
Short Analysis Of On-Chain Activity
In a short analysis, data acquired from previous crypto market cycles has confirmed that both the 7-day MA of on-chain transfer volume Mean and Median sizes have significantly soared 4X on their 360-day MA level. However, this performance has dropped below 1X on their 360-day MA.
In that context, the Mean and Median size of the on-chain transfer volume are the proxies for large and smaller transactions. In that case, as the Mean value rises, the higher number of transactions happening.
On the other hand, Median size is a proxy for small transactions attributed to retailers. Notably, there has never been a spike of more than 4X. The Mean value has always correlated with the Median, indicating that activity levels for both large and minor retailers were increasing as prices rallied to the new all-time highs, reaching more than 4X of their 360-day MA.
In that case, there is a significant difference between the Median and Mean values. This divergence highlights the larger entities’ footprint in the ecosystem, with different convictions and visions.
Fund Flow Ratio Analysis In The Current Market Cycle
After a heated discussion of apparent footprints from large entities above, valuation in an on-chain metric known as Fund Flow Ratio can be studied to evaluate this assumption.
Institutional investors are increasingly withdrawing their assets from the crypto exchanges (on-chain). As a result, the Fund Flow Ratio for an on-chain transfer volume not sent or withdrawn from crypto exchanges could therefore be divided by total on-chain transfer volume to determine the category’s weight.
While examining the historical trend of this ratio, data reveals that it fell after reaching the ATH and entering the bear market. Despite the 50% market correction in May, this ratio has relatively increased since January 2021. In that context, almost 96 % of on-chain transactions are not attributed to withdrawals or deposits from the exchanges.
The simple conclusion is that institutional participation in crypto markets is significantly growing.