Read this if you’re trying to make sense of cryptocurrency and the conflicting data around it.

I’ll be using Bitcoin as an example, but the same applies to other cryptocurrencies. This post focuses on the Crypto and the Network Transactions Ratio.

If you’re a crypto ‘bod’ make sure you come back to me with some answers!

Firstly, I like plain English –

Not through lack of communication skills.

Not because I don’t value the beauty and variety of our beautiful language.

Plain English because otherwise understanding is reduced or even taken away.

Crypto and The Network Transactions Ratio – Crypto Currency Valuation

How do you measure the value (whether fair, under or over) of Bitcoin, Litecoin, Stablecoin or whatever other cryptocurrency there is?

Stocks Market Investing Recap

There are metrics which are generally accepted such as the price to earnings ratio (P/E).

“Yes, Lord Morpeth xyx has got a low p/e in comparison to similar shares in the same sector. This combined with what our (ever so knowledgeable) CFA analysts are reiterating makes xyx a good buy, it’s undervalued”

As we all know, nothing feels better than buying low and selling high, right?

Casting my mind back to trading futures in the 1990s. Selling high and buying low as well as buying low and selling high was also possible.

The P/E is the share price divided by earnings. This isn’t the only ratio but it’s one of the most commonly put to use. Another useful one is dividend cover and don’t forget the weather forecast.

I.E.

Outlook for sector good?

Comparative discounted P/E?

Dividend cover?

Sunshine forecast?

Buy.

Does that also apply to Bitcoin or whatever other Crypto asset?

Is Bitcoin a share? A bond? A piece of code? What the heck is a Bitcoin?

What can I use Bitcoin for, besides looking at the code in my digital wallet?

What are the earnings? What’s the forecast for growth? New markets?

How does the price compare to other cryptocurrencies in the same (cryptific) sector?

I can see the price. At time of writing:

$7,156.37

£5,704.57

I got the price everybody! I got the price!

That wasn’t hard.

Buy on the basis of it being stable and comparatively low (to December 2017 anyway?)

But I need the other bit.

Introducing The Network Value to Transactions Ratio (NVT)

I like the sound of it.

What is it? And importantly, can I use it to find ‘fair value’ or my preference – ‘undervalue’ – number, so I take the decision to ‘load up’? Or steer clear?

need more than my ‘gut’ instinct.

need confirmation.

need support.

need some reassurance of collaborative reasoning that distills into a number I understand.

Can I compare ‘unknown intrinsic’ values of my chosen candidates?

Crypto and The Network Transactions Ratio – Intrinsic Value?

Intrinsic is a fantastic word. It’s something I associate with ‘inner beauty’, something natural. When I look at my dog the intrinsic value is his unflinching loyalty to me. Yes, he’s a bit ugly but his value is really intrinsic.

Likewise, if I look at my youngest son his intrinsic value is his strength, his character and his love (especially for his mum). His intrinsic value is also what I perceive to be as his potential to grow into a kind, sensible, well rounded and responsible adult.

I associate ‘intrinsic’ with the natural world around me. Real value. That means something.

Outside the dimension of natural things if I toss a gold kruggerand from one hand to another I feel it’s weight and its gold lustre is satisfying.

In a way I imagine its value. My perception of value. You may say it has intrinsic value, I may disagree.

A fifty pound note doesn’t conjure up the feeling of intrinsic value.

If I’d been a peasant (in another era instead of this one) and remember most of us are peasants, then I may have been lucky enough to have got myself a gold tooth. Then I would have taken satisfaction in knowing that on my death the undertaker would at least put me in a box and take my tooth as payment. Instead of just ripping the clothes from my body and leaving me to rot and get eaten by crows, or worse.

Gold just like God keeps its value through time, at least to some.

Crypto – Making sense of NVT

I want to load up on more Bitcoin, but as I said earlier I need the other bit.

From a purely speculative ‘punt’ I got some. I’m onside. But there’s a greedy side to me that wants more.

I need to be able to ‘squawk’ about my financial shrewdness. I want to be able to ‘rub salt’ into the wounds of those that are such traditionalists, such fear mongering ‘lemmings’.

See, I was right. You still believed in the old system, even as it crumbled before your eyes. Me and my mates loaded up on crypto and ‘cleaned up’, muppets’

I’m happy with the stability Bitcoin has shown, the temperature of volatility is pleasing. especially in recent months with the saga of ‘Covid-19’.

I’m happy with the concept. I get it.

The mining, the ‘proof’.

I see the momentum.

I understand we’re in the Digital age and all that.

I see the collapse of the traditional asset classes and the weakness of the Keynes economic shipwreck. The hedonistic (live for today) pathway he left as a legacy, may have suited him in his personal conquests, but has also led to the economic horror show we’re now in.

As the preserve for criminals it lost some of its appeal especially after the ‘Silk Road‘ shutdown. Other coins are more preferable to Bitcoin for those engaged in illegal activity.

I see cryptocurrencies getting legal recognition, in the very near future. This will be pivotal to acceptance as an institutional asset.

I see the regulation.

I get it.

I like.

I want it.

But.

I don’t want to get stung. I need reassurance that it’s more than just a speculative ‘punt’.

Because I can spread-bet on anything anyway.

Give me Some Numbers

I can get the market cap or network value (price of all coins in circulation multiplied by the last price Bitcoin traded at) from a number of source with consistency.

In terms of price I have to trust the consistency of pricing.

And I can get the transaction volume.

But is the data correct, that’s my first question? This appears to depend on ‘who’ I get it off?’.

That’s a problem but for the purposes of this, I’m going to accept it, as it is.

17 April 2020

Cap ($) 130,147,161,588

Volume 33,219,745,446

3.9

Dec 18 2017

Cap ($) 319,898,062,111

Volume 13,100,489,728

24.4

Dec 17 2018

Cap ($) 57,094,226,284

Volume 3,635,665,447

15.7

Fri 13 Dec 2013

Cap ($)10,840,969,014

22,267,182 (30 day average volume)

486.9

So I have numbers

486.86, 15.7, 24.4 and latest 3.9

What does my 3.9 tell me?


Overvalued? Undervalued? Fair Value?

What do I need?

Historical average volume for defined periods to conduct analysis and comparison?

Historical cap data?

Then what fundamental factors do I put into the mix, given I want more than a speculative punt?

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