What is NVT for Bitcoin?

Bitcoin’s Network Value to Transactions (NVT) ratio is a key metric for assessing the overall health of the network.

Often compared to the Price-to-Earnings (P/E) ratio in traditional stocks, NVT provides insight into Bitcoin’s market value relative to its daily transaction volume.

By examining this, we can get an idea of how much Bitcoin is being used compared to its current market value.

How NVT Works

The NVT formula is straightforward:

NVT = Market Capitalization / Daily Transaction Volume

For example, if Bitcoin’s total market capitalization is $800 billion and $10 billion worth of Bitcoin is transacted in a day, the NVT ratio would be:

NVT = $800 billion / $10 billion = 80

This figure indicates that Bitcoin’s market value is 80 times the volume of transactions occurring daily.

While some analysts view an NVT ratio between 30-50 as suggesting Bitcoin may be undervalued and a ratio between 70-100 as potentially signaling overvaluation, these numbers should be considered in context rather than as definitive indicators.

NVT’s Role in Market Analysis

NVT can help highlight potential overvaluation or undervaluation, but it isn’t foolproof.

For instance, if the NVT ratio spikes without a corresponding increase in transaction volume, it may suggest market over-exuberance.

Similarly, NVT can be used to compare Bitcoin with other cryptocurrencies by applying the same method to analyze their network health.

Limitations of NVT

However, NVT has its limitations.

It doesn’t account for off-network transactions or the influence of long-term holders (HODLers), which can skew its readings.

Additionally, it’s just one tool among many—best used alongside other metrics for a comprehensive view of Bitcoin’s health.

The NVT Signal

For a smoother analysis, some prefer the NVT Signal, which averages transaction volume over 90 days instead of focusing on daily data.

This offers a less volatile perspective and can be particularly useful for those interested in long-term trends.