CryptoQuant has discovered that the price of Bitcoin might currently be overvalued.
In a recent report, it indeed presents data from a metric that suggests that the real interest at this moment might be even lower than commonly perceived.
At the same time, however, there are also other metrics that suggest the exact opposite.
The possibly overvalued price of Bitcoin
The CryptoQuant report is based on the analysis of the so-called Bitcoin Network Activity Index, which measures the level of on-chain activities of BTC.
Currently, this index is at the lowest level of the last 12 months, with a decrease of 15% compared to the all-time high of November 2024.
The current value is about 3,760 points, and it turns out to be the lowest level since February 2024.
Using Metcalfe valuation ranges, a fair value for the current price of Bitcoin would be within a wide range between $48,000 and $95,000, according to data from network activity.
In fact, CryptoQuant writes:
“At the current price of $99k, Bitcoin seems overvalued considering it has been trading between the red and blue Metcalfe valuation bands since February 2024”.
Therefore, the current price level should be considered an anomaly within the trend that has been ongoing for a year connected to on-chain activity. However, the overvaluation would be minimal if the maximum level of the Metcalfe valuation bands, currently set at $95,000, is taken as a reference.
The causes of the collapse of on-chain activity
CryptoQuant has identified the main cause of the sharp decline in on-chain activity.
Well, such a cause would not be connected to BTC, therefore it is also possible that it is not the price of BTC that is overestimated, but rather the impact of on-chain activity that has been overestimated in recent months due to activity not connected to BTC.
In fact, the recent sharp decline in the number of daily transactions recorded on average on the Bitcoin blockchain is due to the collapse in the use of the RUNES protocol.
Compared to the all-time high of September 2024, when in a single day as many as 734,000 transactions were recorded on the Bitcoin blockchain, the current level is about half, with a minimum peak of just over 300,000 transactions recorded a few days ago.
The RUNES protocol is used to mint tokens on the Bitcoin network, but it really makes little sense to use the layer-1 of the Bitcoin blockchain, which is slow and expensive, to create tokens. It’s no coincidence that Solana has recorded a boom from this point of view, given that on Solana the costs are extremely reduced.
RUNES uses OP RETURN codes in Bitcoin transactions, and while when this protocol debuted the daily number of OP RETURN codes rose to 802,000, since then it has plummeted to 10,000.
This level of on-chain activity so low is also seen in the Bitcoin mempool, which is now almost empty. In December 2024, there were up to 287,000 transactions pending in the Bitcoin mempool, while now they have collapsed to 3,000. The mempool has not been this empty since March 2022.
The impact on the price of Bitcoin (BTC)
If the entire on-chain activity of Bitcoin is taken into consideration, including the transactions generated by the RUNES protocol, the collapse is evident.
Furthermore, using this data to calculate the Metcalfe bands, from February 2024 until today, it emerges that the fair value of the BTC price today should be between $48,000 and $95,000.
But if only the on-chain activity related to BTC transactions were considered, the calculation would be different, because the on-chain activity in recent months has turned out to be “inflated” by RUNES transactions.
Here is how the current price of $98,000 could also fall within the Metcalfe bands calculated with data from the last 12 months, if RUNES transactions were not taken into consideration.
Finally, there are also other metrics that support the hypothesis that the price of Bitcoin might not be overvalued.
The demand
We must not forget that the price of any asset traded on the free market depends not only on supply but also on demand.
CryptoQuant has discovered that the demand for BTC from the so-called Permanent Holder is actually accelerating, and this should instead be considered as a strong confidence signal, which moreover often precedes bull rallies.
In other words, the demand for Bitcoin from long-term accumulators has increased in recent weeks, and this could indicate a possible price growth in the coming months, despite the on-chain activity being so limited.
Moreover, the selling pressure has been decreasing in recent weeks, and since it was already low previously, it means that the conditions for a possible rise could indeed be present.
Note that the Permanent Holder are addresses that accumulate BTC over time but without making outgoing transactions, that is, with a long-term holding strategy that in fact never creates selling pressure.
In a moment when the selling pressure is already low on its own, this contributes even more to creating the conditions for a possible price rise.