Analyst Willy Woo published a thread explaining why the fundamental value of the first cryptocurrency exceeds its market price.
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 Woo, one of Bitcoin’s fundamental indicators is the NVT indicator [Network Value to Transactions]. It is inversely proportional to the velocity of coins moving in the blockchain of digital gold.
I just introduced NVT Ratio.
NVT Ratio is inverse monetary velocity, the co-efficient of proportionality that we can multiply volume by to get market cap. pic.twitter.com/fnTSuGbzbu
— Willy Woo (@woonomic) June 1, 2021
Woo noted that NVT oscillates around an imaginary mid-line. He said it is the normal multiplier by which on-chain transaction volume should be multiplied to obtain a valuation.
If the indicator sits below this line, as it does at present, the market undervalues 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 noted that the NVT chart is ‘drifting upward’. He attributed this to the growing dominance of crypto exchanges, as substantial volumes of assets move off the blockchain.
To compute the fundamental valuation of the network [NVT Price], multiply the median NVT value, adjusted for the drift due to the absence of exchange activity, by the on-chain transaction volume.
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, NVT Price for Bitcoin is estimated at $54 538. At the time of writing, the first cryptocurrency trades around $37 000.
The analyst’s view contradicts the stance of Peter Brandt, head of trading firm Factor LLC. The latter cast doubt on the Bitcoin price rise in the short term.
Back in March, Woo said that in 2021 digital gold was poised for the final phase of a three-year rally «explosive bull rally».