Blog, Cryptocurrency

Bitcoin Valuation

As an investor, I have been wondering what are valuation methods available for cryptocurrency, specifically for Bitcoin. For stocks, we have P/E ratio, P/B ratio and discounted cash flow (DCF) among the many tools in the basket. I will share some Bitcoin evaluation methods that I recently learnt from the cryptocurrency community

Network Value to Transaction Ratio (NVT)

NVT is cryptocurrency equivalent to stock’s P/E ratio. Network value refers to market capitalisation and transaction refers to the amount of transaction occurred. If cryptocurrency network value (market cap) is low and amount of transaction is high, its NVT will be low. Similar to P/E ratio, low NVT ratio indicates presence of value in the cryptocurrency. NVT ratio follows Metcalfe’s Law, which indicates that

Cryptocurrency worth is dictate by the number of participants (n) in its blockchain network.

The NVT ratio is coined by Willy Woo and you can find a Bitcoin’s live NVT chart from his website;

Chart: Bitcoin NVT graph (25/12/2018)

Lets try to decipher the Bitcoin NVT chart above to see if we can find any value from its current price at US$3,800, as of 25/12/2018 (Merry X’mas!)

Period A (2011) – Decreasing NVT lead to an increase in Bitcoin price in mid 2011.

Period B (2014) – Decreasing NVT led to a bull in Bitcoin price, hitting almost US$ 20K in early 2018

Period C (2018) – Will decrease in NVT lead to increase in Bitcoin price? Do note that liquid sidechain launched in Oct 2018 takes away volume from main chart, which makes NVT ratio even more attractive and almost equivalent pre-2018 bull market

Network Unique Addresses (Daily)

Based on Metcalfe’s Law, increasing number of participants in the network will increases its value. Using Bitcoin’s YTD unique addresses graph below, the amount of unique participants remain consistent from Apr to Dec 2018, despite falling Bitcoin price, which suggests that the network is consistently being utilized and is sustainable. The graph can be obtained from BitInfocharts

Chart: Bitcoin Unique Addresses (Daily)

Velocity of Money

This concept is an interesting one which I stunned upon in Bloomberg’s article. If Bitcoin succeed in replacing fiat money as currency, we can estimate its fair value using velocity of money formula.

P = MV/Q


  • P = Number of bitcoin per dollar
  • M = Amount of bitcoin in circulation
  • V =  Money velocity
  • Q = The value of what it buys, per year

I attempted to perform my own Bitcoin fair value calculation with the following assumptions

  • M = Approximately 17.5M
  • V = For normal currency is about 7 (Refer to
  • Q = US$ 1.3trillion, based on Bitcoin 2018 data

Bitcoin price is estimated to be US$ 10,638, which means its current price of US$ 3,800 is undervalued

Lets take the assumptions to another level by assuming all Bitcoin has been mined in 2021 and Bitcoin achieves VISA’s 2016 transaction amount

  • M = Approximately 21M
  • V = For normal currency is about 7 (Refer to
  • Q = US$ 8.9trillion, based on VISA’s 2016 data

Bitcoin price is estimated to be US$ 60,606!

Bitcoin as Store Value a.k.a Gold

Graph: Velocity of Money (M1 Money = typically held for short/medium term expenses, M2 Money = majority held for longer term savings

Based on its current utility from chart, Bitcoin resembles more like non liquid cash that is used for savings or investment. If Bitcoin in eventual succeed as a store value and by taking half of gold market capitalisation (2013: US$ 7.07trillion), Bitcoin price when it is fully mined is estimated to be US$ 340,000


Bitcoin is a new asset class and its potential is yet to be fully tested. It can eventually replace fiat currency or become a store value like gold. But it can also become obsolete in future. It is prudent to continue doing research and keep up to date on the progress of Bitcoin and its blockchain technology to make an educated investment decision

Disclosure: I invested US$10,000 in Bitcoin / US$ 5,000 in Ethereum and Bitcoin market price is US$ 3,800 when this article is written. Any information, commentary, recommendations or statements of opinion provided here are for general information purposes only. 

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