Dear Vikram,
It’s a very interesting article that I enjoyed a lot. Introducing a growth variable provides an alternative perspective which I believe is important to analyze valuations.
I will point out to several things that I’ve observed and then conclude with a simple improvement suggestion (data from Bitinfocharts and Coinmetrics):
- BTC currently is at around USD 140 billion market cap with USD 70 billion weekly transactions. Thus spot check for today (28 Nov) is around 2x NVT which is significantly lower than the yearly average. However, active addresses around 450K is around multi year lows.
- ETH is around USD 45 billion market cap with USD 7 billion weekly transactions. So due to the fact that recent transacitons volume plummetted, the multiple stands higher than the yearly average by a big factor. It’s addresss growth is better but slowing down.
- LTC is around USD 7.5 billion market cap with USD 4 billion weekly transactions — slightly lower than the yearly averages. Addresses while low in absolute figures than BTC and ETH has shown a good increase over the last 12 months.
In summary, when short term moves deviate significantly from the time frame averages, the longer term data by itself can become outdated.
For example ETH is suffering from various real world problems that saw its usage drop a lot so that today’s price relative to yearly average seems cheap but today’s price in light of today’s performance is not so. Coupled with an address decline both NVT and NVTG indicators spot check would show them a lot more expensive compared to the yearly averages.
Likewise BTC has kept up transaction volume so that its NVT multiple is lower with its reduced price but it has a growth problem that deviates from the yearly average. However given still a high number of active addresses, this reduced NVT makes NVTG cheaper as well in relation to the yearly average.
This is a very helpful article that made me ponder and check the figures. If you would include a daily or weekly output that charts together with the annual trend, it could both provide a crossover signal (if that’s meaningful) and an opportunity to compare the present (which is the only reality) with the averages.
Thank you for the good work.
Best regards,
Hulki Okan Tabak