📈 Bitcoin Risk Metric: Are We Overheated?

Bitcoin’s meteoric rise from $65,000 to $91,000 has everyone asking: Are we overheating, or is there still room to grow? Let’s dive into five key metrics to assess Bitcoin’s current market status. These metrics are concise yet comprehensive enough to give you a clear picture of where we stand.

1️⃣ Risk Metric: A Proven Top & Bottom Signal

Our quant Risk Metric—a first-of-its-kind model—combines on-chain and off-chain data daily to deliver actionable insights. This model has successfully identified every Bitcoin top and bottom, making it a favourite for institutional funds.

Here’s a recent example:

• October 13th, 2024: Bitcoin was at $62.7K, just shy of its all-time high. Yet, our metric showed a risk level of only 22%, signalling an excellent entry point for capital allocation.

• Today (November 15th, 2024): Bitcoin’s price has surged to $91K, and the risk metric has risen to 57.5%. While risk has increased, we’re still far from the 80%+ danger zone that typically signals a market top.

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👉 Takeaway: Bitcoin’s recent explosive move has increased its risk, but it’s not yet overheated.

🌟 Explore More: This interactive graph, along with others (1000+), is available on our platform and updated daily to help you make informed decisions.

2️⃣ Free Float Market Value to Realized Value (FFMVRV): Are We Overvalued?

This metric, favoured by Messari’s CEO, compares Bitcoin’s Free Float Market Cap (available supply at market price) to its Realized Cap (supply at the average acquisition price).

FFMVRV = (Free Float Market Cap) / (Realized Cap)

Key thresholds:

• Above 2.0: Overvaluation; potential exit signal.

• Below 0.7: Undervaluation; an accumulation signal.

  
  

Bitcoin’s current FFMVRV sits at 1.814, suggesting room to grow. Historically, Bitcoin reaches overvalued territory as this metric approaches 2.0 or higher.

👉 Takeaway: Bitcoin is approaching higher valuations but isn’t there yet.

3️⃣ Deviation from Fair Value (Power Law Fit Line)

The Power Law Fit Line, often referred to as Bitcoin’s “Fair Value,” is a straightforward yet highly effective model for identifying market tops. It works by calculating the deviation of Bitcoin’s price from its fair value line, providing critical insights into whether the market is overextended or undervalued.

• Current status: Bitcoin is currently 7.77% above its fair value line. Historically, deviations of 70%+ have signalled overextension and potential market tops (see blue circles in the graph). At this level, Bitcoin remains well within a healthy range, far from the danger zone.

  
  

👉 Takeaway: Bitcoin’s deviation from fair value suggests the market is still on solid footing, with no signs of overheating just yet.

4️⃣ Bitcoin ROI: Historical Cycles at Play

Analyzing Bitcoin’s Return on Investment (ROI) between cycle bottoms and peaks reveals whether current performance aligns with previous trends.

• Current status: Bitcoin’s ROI is mirroring historical patterns, suggesting this cycle is not overextended.

👉 Takeaway: Historical cycle comparisons show Bitcoin is performing as expected, adding confidence to its trajectory.

5️⃣ ROI in Election Years: Insights from 2020

A unique metric I like to monitor is Bitcoin’s ROI during the U.S. election years. Currently (red line), Bitcoin is tracking the 2020 ROI trend (green line) very closely.

If this trend continues, we could see Bitcoin easily surpass $100,000 by year-end.

👉 Takeaway: Election year trends point to a bullish trajectory.

Final Thoughts

Bitcoin’s recent surge has sparked questions about overheating, but these five metrics suggest we’re not there yet. While risk has risen, valuation metrics and historical comparisons indicate room for growth. The market is showing signs of health, not froth. Be patient and practice solid risk management—the path to the top is volatile, with 20-25% corrections along the way.

If you’re eager to dive deeper into these metrics, including detailed video breakdowns, visit our platform for exclusive content. 📊

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