A Look at Bitcoin Transaction Value

Chart 3 demonstrates the difference between using adjusted and unadjusted transaction value figures in the denominator of the NVT ratio.

Given transaction value is the denominator, the raw, overstated figure results in an understated ratio all else held equal. This could be especially misleading when comparing bitcoin to other digital assets based on the NVT/NVTS ratios.

The concept of NVT ratio was developed more than two years ago by Willy Woo, as a type of price-to-earnings ratio for bitcoin, and was later named by Chris Burniske. NVTS is a successor to NVT introduced by Dmitry Kalichkin as a more descriptive measure of bitcoin cycles.

While some factors require making downward adjustments to gain clarity on economic transaction value, certain other factors, such as transactions taking place on Layer 2 scaling solutions, like the Lightning Network, and volume on centralized exchanges, result in an understatement in economic value transacted (and overstatement in ratios that use the input as the denominator).

While digital asset networks provide an abundance of real-time, granular data, it should not be taken at face value and requires deeper analysis to filter out noise and form well-informed conclusions to the extent possible.

Thank you to the teams at Coin Metrics and Avon Ventures for their feedback and suggestions on this analysis.