“Please note that this post is not a recommendation to trade, it is just a review of an ONCHAIN index. “
One way to check the intrinsic value of bitcoin is the NVM Ratio, And it can be compared to the P/E index in the stock market This index is based on Metcalfe’s Law.
Metcalfe’s law states the effect of a telecommunications network is proportional to the square of the number of connected users of the system. In another world: the value of the network is proportional to the square of the number of active users.
Network Value to Metcalfe Ratio (NVM Ratio) is defined as the ratio of the log of market capitalization divided by the log of the square of daily active addresses.
The chart above shows the price of Bitcoin , MarketCap, and the number of active addresses.
We have compared these 3 values in the top 2021 compared to 2018. Although the number of active addresses has remained almost constant, the market cap has risen from 378 B to 1.22 T (It has increased almost 3.3 times). In fact, despite the fact that the number of active network addresses remains constant, its price has increased 3.3 times.
NVM ratio in the recent top was 1.32 and in the top of 2017 was 0.43. NVM Ratio is now close to its ATH . This could be a sign that the network is overvalued