On-Chain Indicator Suggests Bitcoin, Ether Are Trading at a Discount

Traditionally, higher NVT ratios indicate that an asset is becoming more expensive, while lower NVT ratios indicate the opposite.

AccessTimeIconMar 21, 2023 at 9:25 p.m. UTC
Updated Mar 22, 2023 at 8:43 p.m. UTC

An on-chain indicator that tracks bitcoin’s (BTC) relative valuation shows the asset has gotten “cheaper” in 2023, despite the recent price increase.

Bitcoin’s Network Value to Transaction (NVT) ratio has declined 60% for the year to date, despite a 68% increase in BTC’s price.

BTC’s current NVT ratio of 36.18 is slightly below the 365- day average of 36.40. The current ratio trails the 30-, 60-, 90- and 180-day NVT ratios, which all range between 44 and 49.

Bitcoin NVT Ratio (Glassnode)
Bitcoin NVT Ratio (Glassnode)

The cause of the decline is that BTC transaction activity is outpacing the increase in its actual price. Higher network activity indicates bullish sentiment, and the extent to which it has exceeded BTC’s price rise implies that bitcoin is trading at a discount.

The NVT ratio measures the relationship between an asset’s market capitalization and its network transfer volume.

Market capitalization represents the price of an asset multiplied by the total number of coins in circulation. Network transfer volume is a measurement of how much BTC is moved from one address to another.

Analysts view transfer volume on par with company earnings – akin to the price to earnings (P/E) ratio in equities. Like the P/E ratio, NVT ratios are used as a tool to examine the cost of a digital asset.

Traditionally, higher NVT ratios indicate that an asset is becoming more expensive, while lower NVT ratios indicate the opposite.

Investors would be keen to note the extent of NVT ratio fluctuations, which tend to oscillate. For that reason, daily moves should be viewed in context with a longer-term trend. For BTC, the overall trend has been downward since December 2022.

The same dynamic holds true for ether (ETH) because its NVT ratio of 74.16 is down 68% since January, by comparison to a 51% increase in ETH’s price.

Ether NVT Ratio (Glassnode)
Ether NVT Ratio (Glassnode)

ETH’s current NVT ratio is trading at a 19% discount to its 365-day average, a larger spread than the one that exists between BTC’s current and 365-day NVT ratios.

Ironically, the difference is almost identical to the 18% spread in year-to-date performance for BTC and ETH, as part of their strong overall correlation.


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Glenn Williams

Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX