Analyst Willie Wu published a thread in which he explained why the fundamental value of the first cryptocurrency exceeds the market value.
A thread about NVT, one of the first on-chain signals first published in Feb 2017.
This is a 2021 re-hash of my NVT learnings since then.
“How to use on-chain volume to establish a fundamental valuation for Bitcoin.” pic.twitter.com/m3BHsFx70o
– Willy Woo (@woonomic) June 1, 2021
According to Wu, one of the fundamental indicators of bitcoin is the NVT indicator. [Network Value to Transactions]… It is inversely proportional to the turnover rate of coins in the digital gold blockchain.
The analyst compared the indicator with the price / earnings ratio. It is used for a comparative assessment of the investment attractiveness of a company. If you multiply the value of NVT by the amount of funds transferred between investors, you get the market capitalization of the asset.
I just introduced NVT Ratio.
NVT Ratio is inverse monetary velocity, the co-efficient of proportionality that we can multiple volume by to get market cap. pic.twitter.com/fnTSuGbzbu
– Willy Woo (@woonomic) June 1, 2021
Wu noted that NVT is hovering near an “imaginary centerline.” According to him, it is the normal ratio of an asset, which must be multiplied by the volume of transactions in the blockchain in order to get an estimate.
If the indicator takes a value below this line, as at the moment, the market underestimates the asset, and vice versa.
NVT oscillates around an imaginary mid-line. That mid-line is in effect the normal ratio that we should multiply volume by to get its valuation. pic.twitter.com/wEQrmTpzc0
– Willy Woo (@woonomic) June 1, 2021
The specialist drew attention to the fact that the NVT chart is “drifting upward”. He attributed this to the growing dominance of cryptocurrency exchanges, as significant volumes of assets move outside the blockchain.
To calculate a fundamental estimate of the network cost [NVT Price], you need to multiply the median NVT value, taking into account the bias due to the lack of exchange activity, by the volume of transactions in the blockchain.
Putting it all together. We run a 2 year moving median of NVT Ratio, that gets us an estimate of the mid-line value also accounting for the drift upwards due to the missing exchange activity. Multiply this by the on-chain volume, and we get a fundamental network valuation. pic.twitter.com/M2WQtiisLC
– Willy Woo (@woonomic) June 1, 2021
According to Woobull Charts, the NVT Price for Bitcoin is valued at $ 54,538. At the time of writing, the first cryptocurrency is trading at around $ 37,000.
BTC / USDT chart of exchange Binance. Data: TradingView.
The analyst’s opinion contradicts the position of the head of the trading company Factor LLC, Peter Brandt. The latter questioned the rise in the price of bitcoin in the short term.
In March, Wu said that digital gold expects the final “explosive bull rally” for a three-year rally in 2021.
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