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."
Ever seen this chart of BTC's on-chain volume vs its market cap and wondered why they track so closely?

On-chain volume measures the amount of money moving between investors as seen on the blockchain per day. It's highly correlated to market cap.

But why?
Let's lay down a first principles equation for a pure store of value network:

value moving between investors = value of the network * how much the money supply churns

In short form:
I = M * V

where:
I = Value moving between investors
M = Market Cap
V = Monetary Velocity
I = M * V

In other words:
M = I * (1/V)

Market cap should fundamentally be proportional to the volume moving between investors.

The co-efficient of proportionality is inverse monetary velocity.

Aha, that's why these 2 lines track each other.
Just like we can estimate the valuation of a company by looking at its earnings and multiplying by the expected PE Ratio for its category of company, we can do the same for Bitcoin... but instead of using PE Ratio and earnings, for Bitcoin we use NVT Ratio and investor volume.
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.
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.
Oscillations below and above the middle region indicate the market is undervaluing or over valuing the network respectively.
Notice how NVT is drifting upwards? This is because not all of the investment volume has been accounted for, volume has been moving off the blockchain as exchange dominance increases.
We can actually see the dominance of exchanges increase in big jumps since 2017.

Exchange user count data via surveys by @CambridgeAltFin, while on-chain user count via forensic clustering of BTC addresses by @glassnode.

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.
Original NVT article:
woobull.com/introducing-nv…

Fun fact, this article was originally published in Forbes. @laurashin was the crypto editor there at the time and she approached me to write for them. I never did continue. Not long after, she went on to launch her amazing podcast.
Live charts available here...

NVT Price and NVT Premium:
charts.woobull.com/bitcoin-nvt-pr…

NVT Ratio:
charts.woobull.com/bitcoin-nvt-ra…

NVT Signal:
charts.woobull.com/bitcoin-nvt-si…

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More from @woonomic

9 May
This cycle is different; the movement of coins to strong holders is unprecedented.

Chart: purple line tracks coins moving between weak and strong hands (running total over 128 days)

Raw data: @glassnode
A few observations regarding the trend towards strong HODLing...

1) No way are we entering a bear market. That's obvious this week from price action, but not so obvious 2 weeks ago when the sky was falling.
2) Coins moving to corporate treasuries likely making an impact.
Read 6 tweets
20 Apr
This revisit of lower price has created incredibly strong price validation for Bitcoin about $1T cap. 14% of the supply last moved above $1T cap.

This is a key line in the sand imprinted into BTC's price discovery, an area of immense support.
Anyone thinking we are going into a prolong price correction needs to know about the rate of new users coming into the network per day. We're in the middle of a bull market with a hockey stick of new adoption, especially in the last 2 weeks.
Coins continue to move to very strong holders (the Rick Astleys of this world). And moving at all-time-high rates.
Read 4 tweets
19 Apr
Chinese miners went offline 3hrs into the difficulty adjustment.

The difficulty adjusts every 2 weeks to match the natural increase in hash rate from miners. This keeps block times to a steady 10 mins. If you're going to slow the network down, this is the best window to do so.
9.5hrs into the difficulty adjustment, 9000 BTC was deposited into Binance, this provided enough selling pressure to drop the Bitcoin price below $59k support, forcing the $4.9b of liquidations.
It's an interesting timing of events.

We have 11 more days before the next difficulty adjustment corrects for any loss in miner hash rate. Note the hash rate is already returning to the network.

This is an addendum to my price crash post mortem thread:

Read 4 tweets
18 Apr
#marketupdate, breaking it down, post mortem.

We just saw the single largest 1-day drop in mining hash rate since Nov 2017. The hash rate on the network essentially halved, causing mayhem in BTC price as it crashed.
The power outage in Xinjiang (which powers a significant amount of the BTC mining network) was known before the BTC price crash. Here's local news on 15th April.

translate.google.com/translate?sl=a…
16 April.

9000 BTC was sent into Binance, read that as a sell off of those coins.

I'd note that Binance serves volume from Asia more than the West. It's likely this was sent in from a whale with closer knowledge to happenings in China.
Read 10 tweets
18 Apr
Price and hash rate has always been correlated.

This is BTC price vs today's hash rate collapse (from the Xinjiang blackout).
For those who remember the hash rate collapse of November 2017...
Latest hash rate data by @glassnode, 6hr MA.

Already nearly fully recovered.

BTFD.
Read 4 tweets
31 Mar
A time-lapse map of the price when coins last moved.

Clusters of strong price discovery:
$55k (7% of supply last moved above this)
$47k (15%)

$46.4k is the price I'm modelling that we won't visit again during in this bull market (daily close).
Shear cliffs are areas where coin supply moves steeply upwards in price discovery. (green)

Flows downwards are bear market movements where coins move downwards to lower prices, investors accepting losses (red).
Horizontal bands are dense areas of where coins last moved, hence strong price discovery, acting as support and resistance.
Read 5 tweets

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