NVT Ratio, or Network Value to Transaction (NVT) Ratio, is a technical indicator for measuring the value of the Bitcoin network. It is calculated by comparing the total market capitalization of Bitcoin to its trading volume over a certain period of time.

NVT Ratio = total market capitalization / trading volume within a certain period of time

Specific analysis purpose

The NVT metric is somewhat similar to the P/E ratio used in traditional stock markets and can be used to assess the value of the Bitcoin network.

• A high NVT ratio (or uptrend) indicates that Bitcoin has a relatively high market capitalization and relatively low trading volume. Bitcoin is overvalued. This usually indicates that the market is overheated or investor sentiment is too optimistic. Historically, high NVT ratio extremes indicate that the market is near a top and are a signal to sell.
• A low NVT ratio (or downtrend) indicates that Bitcoin’s market capitalization is relatively low and trading volume is relatively high. Bitcoin is undervalued. This usually indicates a market downturn or cautious investor sentiment. Historically, low NVT ratio extremes indicate that the market is near a bottom and are a signal to buy.

Overall, the NVT indicator can be used to assess whether a cryptocurrency is overvalued or undervalued. It reflects the health of the market and can be used to assess macro market cycle conditions and provide buy/sell signals.

Historically, an NVT Ratio between 30 and 50 represents a market top; an NVT Ratio below 15 represents a market bottom.