The Daily Dive #075 - NVT Ratio Analysis
Network Value To Transaction Ratio (NVT)
Network value to transaction (NVT) ratio describes the relationship between market cap and transfer volumes. It is considered analogous to the P/E (price to earnings) ratio used in equity markets. This is a metric created by Willy Woo.
"When Bitcoin's NVT is high, it indicates that its network valuation is outstripping the value being transmitted on its payment network; this can happen when the network is in high growth and investors are valuing it as a high-return investment, or alternatively when the price is in an unsustainable bubble."
Using a 30-day moving average of the NVT ratio, the network value is at 21.41, its lowest value since July 2019. Currently this tells us that the market cap value is not keeping up with the latest increases to transfer volume indicating that the market cap of the network is undervalued by investors relative to its last three-year history.
Another way to look at this ratio is to use the NVT signal ratio. Instead of looking at daily transfer volumes in the denominator of the NVT ratio, the NVT signal ratio uses a 90-day moving average of daily transaction volume instead. Using 90-day averages instead of raw daily volume mutes the impact of higher or lower outlier transfer volume days and better captures short-term trends that are forming.
This approach improves the ratio to better serve as a leading indicator. Since the end of September, the NVT signal ratio has been relatively low (compared to the last three years) but climbing. This is another indicator that the market cap is currently undervalued and has room to increase relative to the last 90 days of transaction volume.
The current NVT ratio is yet another indicator and metric that is in line with our bullish expectations for an undervalued Q4 bitcoin price.
This deserves to be repeated: bitcoin is extremely cheap, and we hold the belief that it is still the most asymmetric investment opportunity on the planet. The monetization process of a brand new global digital bearer asset will only happen once, so don’t let the opportunity pass you by.