Valuing bitcoin has been pretty well impossible. For stocks, the go-to valuation metric is the price-to-earnings ratio. Well, we might, finally, have a multiple to use when figuring out whether bitcoin is over- or under-valued.

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The new valuation metric for bitcoin is the NVT ratio - network value-to-transaction ratio. Right now the NVT is about 88x. This is the highest we’ve seen it since April 2015 and above the historical average. Granted, it’s not horribly overvalued, although it is back near all-time highs of nearly $5,000.

 

NVT = red line, market cap = yellow line

More mass adoption could continue pushing bitcoin higher. And adoption is coming, with Goldman Sachs (GS) looking to launch a crypto trading desk. Bitcoin is actually trading right at Goldman’s price target as well -- $4,827. With the NVT though, we can rely less on technical analysis when it comes to valuing bitcoin. Despite not having any earnings, bitcoin does have transactions - which in a sense, is a measure of the adoption of bitcoin. But the NVT doesn’t account for how fast the transactions are being completed - i.e. faster technology - which would justify a higher NVT. Then there’s the big caveat, that some transactions are from trading. But more trading means that bitcoin is gaining traction in the investing world. However, should a currency really be justified by how usable it is?

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