Bitcoin (BTC) has seen significant price movement, recently surpassing the $98K mark, but a closer look at the underlying network activity raises concerns about its valuation. While the price surge is exciting for investors, the declining network fundamentals suggest that Bitcoin may be overvalued at current levels.

Network Activity at a One-Year Low

Bitcoin’s price has dipped after briefly surpassing $100K, now hovering around $98K. However, network activity has reached a one-year low, highlighting a disconnect between price and fundamental data. Declining network activity is often a warning sign that the market is losing momentum, even as the price continues to rise.

Evaluating Bitcoin’s value using Metcalfe’s law, which suggests that the value of a network is proportional to the square of its active users, indicates that Bitcoin’s fair value should range between $48K and $95K. Currently, Bitcoin is trading well above this range, raising concerns about the sustainability of its current price.

Metcalfe’s Law and Market Valuation

According to Metcalfe’s valuation bands, Bitcoin’s fair value has historically fluctuated between $48K (red) and $95K (blue). Bitcoin’s current price exceeding these bands suggests that the cryptocurrency may be trading at a speculative premium. This could be fueled by external factors such as institutional ETF inflows or broader macroeconomic optimism, but it also points to a possible overvaluation.

Bitcoin’s price has remained above the upper Metcalfe band since early 2024, indicating that the current price may not be fully supported by the network’s fundamental metrics.

MVRV Ratio Indicates Potential Overvaluation

The Market Value to Realized Value (MVRV) ratio, another key metric for assessing Bitcoin’s valuation, suggests that Bitcoin may be overvalued. Historically, when the MVRV ratio exceeds 2.4, it has often preceded market corrections. With Bitcoin’s MVRV ratio currently in this zone, there is a growing risk that the market is due for a correction, as the gap between market price and realized value indicates that many investors are holding onto unrealized gains.

Technical Indicators Point to Resistance at $100K

From a technical standpoint, Bitcoin has maintained a bullish trend but shows signs of exhaustion. The price is currently hovering near the 50-day Moving Average (MA) at around $98,710, and momentum indicators suggest a slowing rate of upward movement.

If Bitcoin fails to hold above the $98K mark, it may experience a pullback toward the $95K range, aligning with the upper Metcalfe valuation band. However, if the bullish momentum picks up, Bitcoin could target the psychological $100K resistance.

Short-Term Correction or Long-Term Growth?

Bitcoin’s network activity at a one-year low, combined with price levels exceeding fair value estimates, suggests that the cryptocurrency may be overextended. While factors like institutional demand and macroeconomic trends could continue to fuel Bitcoin’s rally, its current price may be difficult to sustain based on on-chain fundamentals.

For investors, this raises an important question: will Bitcoin face a short-term correction, or will it continue its upward trajectory? If Bitcoin fails to maintain momentum at current levels, a correction toward the $95K-$90K range could present a more favorable entry point. Conversely, if network activity improves, the rally could continue, defying fundamental concerns.

In conclusion, while Bitcoin’s price continues to excite investors, the underlying network data and technical indicators suggest caution. Investors should keep a close eye on key support levels and network activity to gauge whether Bitcoin’s rally is sustainable or headed for a pullback.