Skip to main content

CRYPTO TRADING ACADEMY: WHAT IS THE BITCOIN NVT RATIO?





Traders and market analysts use various indicators and ratios to determine the value of the stocks, assets, commodities, and currencies with which they engage. When it comes to Bitcoin, however, things are a bit different.
Because of its nature and the fact that it’s the world’s first fully functional digital currency, there are differences which must be accounted for.
For example, when individuals trade stocks, they take advantage of the so-called P/E Ratio, or Price-to-Earnings Ratio. It measures a stock’s current share price relative to its per-share earnings.
With Bitcoin, however, this is hardly applicable because it’s not a stock. There is something similar, though, and it’s called the NVT Ratio.

What is the Bitcoin NVT Ratio?
Bitcoin’s NVT Ratio, also known known as Bitcoin’s Network Value To Transaction Ratio, indicates whether Bitcoin is overvalued or undervalued.
The ratio represents the cryptocurrency’s Network Value ( Which is its current market capitalization) and the transaction volume that’s transmitted through Bitcoin’s Blockchain over a period of 24 hours. That’s perhaps why some people actually refer to NVT ratio as Bitcoin’s P/E Ratio. It’s because it uses the value which flows through the network as a proxy for company earnings.


How to Calculate the Bitcoin NVT Ratio:
It’s actually fairly easy to calculate Bitcoin’s NVT Ratio. You just have to divide its current market capitalization by the USD volume transacted over its blockchain over the past 24 hours.
The data is easily accessible. You can find the market cap on websites such as CoinGecko, and the transaction volume on websites such as blockchain.com.
Keep in mind that using data from different tracking websites will probably give you different NVT ratios because the data displayed there could vary.
The person who conceptualized Bitcoin’s NVT Ratio is popular independent crypto researcher and analyst Willy Woo.





However, it’s also worth noting that Bitcoin’s market cap can vary significantly due to its extreme volatility. The volume transacted on the network can also vary, and that’s why there’s another ratio called the Bitcoin NVT Signal or Bitcoin NVTS.

What is the Bitcoin NVTS?
Bitcoin’s NVTS is almost the same as the NVT ratio, but it’s actually more accurate and responsive. In order to determine the ratio, all you need to do is divide Bitcoin’s market cap by its 90-day transaction volume.

The NVTS Ratio was conceptualized by the chief research officer at Cryptolab Capital, Dmitry Kalichkin.

Kalichkin, however, acknowledges the limitations of these indicators because they don’t factor in the number of transactions or the number of active daily addresses.


How to Use the Bitcoin NVT Ratio:
Just like any indicator, the NVT Ratio can provide valuable information which could impact your decision-making process.
As we explained earlier, its main purpose is determining whether Bitcoin is undervalued or overvalued. The indicator could potentially tell you whether it’s time to sell as the asset is severely overpriced and a correction is coming, or to buy because its value is not yet represented in its price.
There are various theories as to when the NVT is indicative of the state of the market and how best to use it, but ultimately the decision is yours.
Some analysts suggest that Bitcoin is in bubble territory when the NVT Ratio is 95 or above. In order for the ratio to be high, Bitcoin’s market cap must substantially outweigh its transaction volume, potentially signaling that the price is unjustifiably inflated. Naturally, the opposite can also be true.

Comments

Popular posts from this blog

Bitcoin Hash Rate Hits All-Time High: Here’s How It Works And How It Affects The Price

Bitcoin intelligence, data, and analytics firm Glassnode found the Bitcoin hash rate hit a new all-time high over the weekend, ten days before the Bitcoin halving event. In other words, miners are putting more computational power into maintaining the Bitcoin network. Because miners must venture electricity and capital intensive computer processors to mine Bitcoin, the increase in hash rate is a bullish sign. It means miners are after the Bitcoin rewards they get from maintaining the network. And they’re venturing the resources to go after those rewards. Is The Bitcoin Hash Rate Correlated With The Price? In general, the Bitcoin price and the hash rate are not correlated. The price is what buyers and sellers agree to pay for one Bitcoin, and there are many factors – external and internal – affecting the price. However, there is a relation between the two. While the price goes up, it’s more profitable to mine, which likely to cause more miners to turn on their mining equ...

IN THE NEW DECADE, CRYPTO WILL BECOME ESSENTIAL LIKE EMAIL: SAYS TYLER WINKLEVOSS

It’s the start of a new decade, and industry famous twin Tyler Winklevoss, the co-founder, and CEO of cryptocurrency exchange and custodian company Gemini Trust, has shared his views on what the next ten years hold for crypto. According to Winklevoss, crypto is already becoming more than a niche technology and a form of money, and it will play an essential role in our daily life in the foreseeable future. “Today, crypto is still a niche technology and a form of money. It is not crucial to your everyday life the way email and other web applications are, but our thesis is that this will change — it’s already changing if you look close enough,” Winklevoss wrote. Winklevoss added that the decentralized nature of cryptocurrencies, which empowers individuals, will be the driving force within the new decade. Crypto will not only redesign the internet but will also redesign the financial and monetary systems to protect the rights and dignity of users, he said. The Winklevos...

Qatar Blocks Cryptocurrency Services Throughout The Gulf

As the new year begins, Qatar’s Financial Center, the nation’s regulatory authority, has issued a blanket ban on cryptocurrency-related services in the Gulf nation. The prohibition covers not only cryptocurrencies but “anything of value” that could substitute fiat currencies. Qatar Bans Cryptocurrencies The Qatari Financial Center, which is also the nation’s regulatory authority, has issued a statewide ban on cryptocurrencies and other digital assets that might substitute traditional fiat. Per the report , the authority stated that: “Virtual Asset Services may not be conducted in or from the QFC at this time.” It also reads that this goes for “Anything of value that acts as a substitute for currency, that can be digitally traded or transferred and can be used for payment or investment purposes.” However, it’s also worth noting that the ban doesn’t cover digital forms of securities or other financial instruments that are thoroughly regulated by the Regulatory Authority, ...