Network value to transactions ratio
Indicator appearance
Network value to transactions ratio is a sentiment analysis indicator, which shows the ratio of network value to transaction volume and describes the relationship between market capitalization and the volume of transfers.
<aside> 💡 According to Willy Wu, the creator of the metric, it can be considered as an analog of P/E (price to earnings) in classical markets.
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In the chart settings window, the user can choose the display colors and transparency of the indicator.
Indicator chart settings
The indicator is available on all subscription versions
NVT was one of the first onchain metrics and ties together two main parts: value and utility. Bitcoin is not only a means of saving, but also a network of payments and settlement. The NVT ratio attempts to model the balance and discrepancy between the value of the network attributed to the market and the utility it brings to users in terms of transaction throughput.
An important observation in interpreting NVT relates to how Bitcoin network usage and market prices have and will continue to change over time. As technologies evolve (e.g., the Lightning network), interpretations change and the price of coins increases over time. A direct comparison between NVT values in 2013 and prices in 2021 is unlikely to be unambiguous. As Bitcoin undergoes monetization and proliferation, the prevalence of coin holders using it as a payment network rather than as a long-term savings vehicle has changed. Therefore, it is recommended to compare absolute NVT values to market cycles of similar maturity and give trend direction more weight in the analysis than the absolute value.
As a result, it is often advantageous to apply a moving average to NVT in order to observe broader trends. The chart below shows how, despite NVT's minimum value increasing over time (which is theoretically bearish), to fully evaluate the
Network value to transactions ratio
The signal that NVT provides is typically easy to value, and this simplicity has made it a staple in the onchain space. NVT values naturally change on a daily basis, but the focus will be exclusively on high and low NVT values:
Signal: bearish, declining fundamentals.