If you’ve been tracking analysis articles in the crypto world, you’ll likely have come across the term NVT as a rough metric that is – more and more frequently – used to value bitcoin and other cryptos. So what is it and why is it important?
Network Value to Transactions is simply the ratio of the market cap of the crypto to the volume of daily transactions. If a network is more frequently used, we would expect its value to be higher. Comparing different networks, we can see whether one has a significantly higher or lower valuation than we might expect for the amount of actual use it supports.
Comparing different networks’ NVT values, we can see that LTC has a higher NVT than BTC and is – by this metric – more overvalued than bitcoin.
Conversely, DOGE could be considered more undervalued than bitcoin.
NVT is a good and logical starting point, but it’s a blunt metric. It doesn’t take into account a number of significant factors, such as: off-chain (exchange-based) transactions, spam attacks (lots of useless transactions), the difference between old and new addresses, and so on.
A more exciting, complex and nuanced approach along the same lines is Network Value to Metcalfe (NVM) ratio. We’ll be looking at that in a future article, but you can read more about it here.
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