NVT Ratio (Network Value to Transactions Ratio) is similar to the PE Ratio used in equity markets.
When Bitcoin`s NVT is high, it indicates that its network valuation is outstripping the value being transmitted on its payment network, this can happen when the network is in high growth and investors are valuing it as a high return investment, or alternatively when the price is in an unsustainable bubble.
Liquid, Bitcoin`s first sidechain, went live 10 Oct 2018, taking volume off the main chain. NVT will need recalibration.
Bitcoin`s NVT is calculated by dividing the Network Value (market cap) by the USD volume transmitted through the blockchain daily. Note this equivalent of the bitcoin token supply divided by the daily BTC value transmitted through the blockchain, NVT is technically inverse monetary velocity.
In the chart above, the NVT line is smoothed with a 14 day moving average.
In Feb 2018, Dimitry Kalichkin published his work to improve NVT for use as a more responsive indicator, hence Kalichkin NVT Signal. In the same month I applied some trader techniques to NVT Signal and published an article summarising how to use it within a trading environment.