Cardano’s NVT ratio hits 5-month high: Is ADA overvalued?

• Cardano NVT ratio surged to June levels, signaling further downside.
• ADA has declined by 8% over the past month.

Cardano [ADA] experienced a sustained decline over the past month. However, with the crypto market recovering following BTC’s surge to a recent high of $72k, ADA has also seen a moderate recovery on daily charts.

In fact, at the time of writing, Cardano was trading at $0.358, a 3.81% increase over the past day.

Before this, ADA was in a downward trajectory, declining by 8.0%. With the overall market remaining bearish, analysts fear further decline.

 IntoTheBlock analysts have suggested further decline, citing the rising NVT Ratio.

Cardano’s NVT soars to 5-month high

According to IntoTheBlock, Cardano’s NVT ratio has surged to hit the highest levels recorded in June. This rise indicated a decrease in on-chain activities relative to its price growth.

Source: IntoTheBlock

When an asset’s NVT ratio is set like this, it means that ADA is overvalued. This is evidenced by the fact that the ADA has underperformed recently. As such, in these conditions, the altcoin might see a further downtrend.

According to this analysis, the historical data pointed out that when the NVT ratio rises, it usually precedes the price decline.

Therefore, without an increase in on-chain activity, Cardano’s price could struggle to maintain any upward momentum.

What does it mean for ADA price charts?

As observed above by IntoTheBlock’s analysis, a decline in on-chain activities typically leads to further downside.

AMBCrypto’s analysis suggested that even though ADA has made some gains over the past few days, the overall market sentiment remained bearish.

Source: IntoTheBlock

For example, Cardano’s large holder’s outflow has surged over the past week.

According to IntoTheBlock data, large holders’ outflow has surged from 10.84 million ADA tokens to 100.88 million, hiking by 830.63%.

Such massive outflow implies that whales and large holders are closing their positions to either reduce their losses or take profits after recent gains. Such behavior suggests that large holders lack confidence in the altcoin’s prospects.

Source: IntoTheBlock

This phenomenon is further strengthened by a decline in large holders’ netflow.

This has dropped from 56.1 million to -8.87 million, highlighting that there are more outflows from the asset than inflows.

Simply put, ADA was struggling to maintain an upward momentum. As such, the altcoin has traded in a descending channel over the past month. With these prevailing negative sentiments, ADA is not strong enough to break out from this downtrend.

Read Cardano’s [ADA] Price Prediction 2023-24

Thus, as observed by IntoTheBlock, ADA has to experience a surge in on-chain to see a rise in price charts.

If it fails to do so, the altcoin will decline to $0.32. However, it builds a strong momentum to challenge the status quo, ADA could attempt $0.38 in the short term.