Cryptocurrency in a bubble state

  • Mar 11 2021
  • by
  • Analyst AZA
Cryptocurrency  in a bubble state

Bitcoin: is the cryptocurrency already in a bubble state?

On the usual, classic audio sites, the ratio of price to profit - the PE ratio is active, and for quite a long time, is used to monitor various companies.

In other words, this is the ratio of the value of one paper to a corporation with an equivalent income on paper.

In case this value is large, this indicates a revaluation, or says that the company is developing rapidly.

But if we consider the market of crypto currency, in particular bitcoin, a logical question arises: what similar coefficient can be used for crypto currency?

There is a price for one coin - a token, but there is simply no concept of the company, and therefore there is no revenue - revenue, based on which this ratio is calculated.

But bitcoin acts as a payment instrument, it performs the function of a network, which is designed to save value, so you can consider the means that pass through its network in the role of an analogue of revenue - the company's profits.

The price of the Bitcoin Network Value network, approximately, shows the amount of funds - the cost of the transaction that operates through the blockage platform.

So, the cost that is transmitted over the network of the block system is the closest to the evaluation of the platform, and accordingly, the idea of ​​using money that passes through the network as a proxy measure to evaluate the network, in itself, is good.

Such a concept is easy to express by the proportion - the ratio of NVT (the ratio of the cost of the network and transactions).

How to apply NVT correctly?

  1. An elevated level of NVT can tell us about a large speculative price.

The rapidly expanding network demonstrates a high NVT.

At the start of the existence of the first crypto-currency of the world, its growth, as could be traced, was very sharp.

This affected the fact that the markets began to evaluate the network very highly, relative to the real cost of the operation that passes through the network.

In other words, we observe that the network rises in an accelerated rhythm, growing, which implies monitoring - conducting a preliminary assessment, taking into account future opportunities.

This is akin to what experts can observe in the proportions of PE in periods of rapid growth of start-ups.

  1. In addition, by means of this factor, bubbles can be tracked, recognizing them.

It is virtually impossible to predict a bubble before it breaks, since a gain in values ​​does not always indicate that the asset is in a bubble state.

We can identify the bubble only at a certain moment - after a specific peak, when the exchange begins to reassess the new price, and then it is clear that the price is either fixed or decreases.

For example, the price of the air in the first quarter of 2016 increased 15-fold, from the mark of $ 70 million, reaching $ 1 billion and even stepping over for it.

For many, it was akin to a bubble, but the collapse did not happen, and the new price was confirmed, confidently proving that it was not a bubble that would burst.


NVT can not recognize the bubble as accurately as possible beforehand, but it can be used to identify interruptions or for consolidation, after the price has reached a record value.

To determine this he can, moreover, implement the procedure fairly quickly.

Following a rapid price jump, the value either strengthens its position at a new level, or is in crisis.

During the period of price rise, a short-term wave of activity of traders can be traced, and new players enter the game - getting into the network, which is used to manage the transaction price.

After the agiotage subsides, it becomes clear that the price that passes through the platform remains, along with its increased price.

So, using the NVT tool, we can see in as much detail as possible the difference between consolidation and bubble.

If NVT remains in the normal range, then the price is accordingly close to the formation of the bubble.

If it is above the normal range, this will indicate that the transaction work will not process the new price, and you can wait for a long price correction.

In fact, the NVT ratio for the world's first crypto currency is the measuring device - it is a comparison of how much the network is valued, to the extent that it is applied.

But do not forget that the use of such a ratio for other networks, the price that is transferred to the unit, should demonstrate the breadth and frequency of the network, and this does not always happen that way.

For example, the price of the air in the first quarter of 2016 increased 15-fold, from the mark of $ 70 million, reaching $ 1 billion and even stepping over for it.


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