The Network Value to Transactions Ratio, or “NVT”, is an insightful metric that puts fundamental, on chain data into focus in an effort to assign fair value to coins.
It is a novel but rapidly adopted measuring rod that analysts and proactive investors are using to gauge and appropriately value cryptoassets. Willy Woo, the creator of this astute metric, gives more background explanation and highlights the importance of NVT as a primary ratio to follow in cryptocurrency on his site. He goes on to say:
“When Bitcoin’s NVT is high, it indicates that its network valuation is outstripping the value being transmitted on its payment network. This can happen when the network is high growth and investors are valuing it as a high return investment, or alternatively when the price is in an unsustainable bubble.”
NVT is a network-tied measure to evaluate and compare hard-to-measure intrinsic values of cryptocurrencies. When we look at how the NVT line relates to its normal range, we can gauge when Bitcoin is becoming overvalued or undervalued. In an interview a year ago, Woo said:
“We didn’t know how to value internet stocks in the 1990’s. P/E ratios were through the roof and people didn’t understand zero marginal cost of companies. …In Bitcoin, we know the transaction throughput, but we don’t know its earnings as it is not a company. It’s the closest proxy we have to it. That’s all it is really. If Bitcoin was a payment company, let’s measure how much throughput it has, to its valuation.”
Most successful traditional stock investors are familiar with the Price-Earnings (P/E) ratio. Put simply, by dividing a company’s current market price by its current earnings per share, the P/E ratio allows investors to gauge a stock’s growth potential. More importantly, it can provide insight into whether a company is undervalued, fairly valued, or overvalued based on its current market position. NVT is similar to this metric.
NVT is calculated by dividing coin’s market cap value by its transaction volume for just this 24-hour period, we get an NVT value of a certain coin.
Dogecoin had by far the lowest (good thing) NVT in the last 24 hours
NVT is a contrarian metric, meaning the lower the value, the better. Dogecoin absolutely dominated the NVT ratio in the last 24 hours, according to the data by Coinmetrics.io and Messari.io.
Dogecoin had an NVT of 0.39, orders of magnitude lower than the second coin in the ranking, Bitcoin Cash that had 6.41. The bellwether cryptocurrency bitcoin had an NVT of 25.20.
To gauge the health of a certain blockchain, we would want to see a higher transaction volume compared to market cap, as this would indicate there is a convincingly significant amount of utility (transactions) currently being used in the world. This is the case with Dogecoin’s network.
Dogecoin ranks high in every on-chain metric category: it had 62k active addresses which ranks it in 6th position for the last 24 hours; $53 million value of on-chain transactions (again 6th position).
With median transaction value of $2.19, Dogecoin is obviously used for a lot of quick micro-payments, tips and similar which indicates it is heading in the right direction as Doge sees tipping and fast micro-payments as its best use case for the future.