{"id":215341,"date":"2017-12-10T12:00:34","date_gmt":"2017-12-10T10:00:34","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=215341"},"modified":"2017-12-08T14:14:59","modified_gmt":"2017-12-08T12:14:59","slug":"bitcoins-own-valuation-measure-is-meaningless-analyst","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/banking\/215341\/bitcoins-own-valuation-measure-is-meaningless-analyst\/","title":{"rendered":"Bitcoin’s own valuation measure is meaningless: analyst"},"content":{"rendered":"

Experts of bitcoin and other so-called \u2018crypto assets\u2019 have started to refer to their own kind of valuation measure \u2013 the network value to transactions (NVT) <\/span>ratio.<\/p>\n

However, according to Andrew Evans, fund manager at Schroder Global Value Team, it tells people nothing about valuation.<\/p>\n

As the perceived worth of a single bitcoin climbed to the $15,000 mark this week, a look at previous months where one bitcoin respectively cost around $2,779 and very nearly $6,000 \u2013 revealed that each time, the primary concern was that there seemed to be no way of assessing its true value.<\/p>\n

Evans said that one of the most basic ways of assessing how a company is being valued by investors is to look at its price\/earning (P\/E) ratio \u2013 that is, its share price divided by its earnings-per-share \u2013 and comparing that, for example, with history, with its peers or with the wider market.<\/p>\n

He said that lately, bitcoin experts have started to refer to their own kind of P\/E ratio. \u201cAt first glance this might sound odd \u2013 after all, bitcoin and the others do not actually produce any earnings \u2013 but, on closer investigation \u2026 well, it is odder still,\u201d he said.<\/p>\n

\u201cThe measure\u2019s actual name is the Network Value to Transactions (NVT) ratio, which \u2013 to take bitcoin as an example \u2013 is essentially the market value of all the bitcoins in the world divided by the US dollar value of transaction activity.\u201d<\/p>\n

He said that the first curious thing about the NVT is it includes a reference to the value of the crypto-asset on both sides of the equation, which is redundant.<\/p>\n

Another curiosity, according to Evans, is that the ratio effectively boils down to considering the value of an asset relative to how much speculation there is in it \u2013 meaning, if you want the NVT valuation of a bitcoin to fall, you just need to trade it more and more.<\/p>\n

The metric fuels more speculation and more interest.<\/p>\n

Evans said that this may be why bitcoin investors are so keen on the metric \u2013 the more they speculate, the \u2018cheaper\u2019 their favourite asset becomes and the more they can encourage fresh interest in the market.<\/p>\n

\u201cAs an example, according to Woobull.com, the bitcoin\u2019s NVT stood at around 60x in June, close to 100x in October and is currently back down to around 60x,\u201d said Evans.<\/p>\n

While its advocates may argue the NVT ratio is similar to the P\/E ratio, Evans said it is actually akin to looking at the market capitalisation of a company \u2013 put simply, its size \u2013 divided by the value of the shares being traded daily.<\/p>\n

Doing the maths on three arbitrary well-known companies tells us GlaxoSmithKline, Centrica and Proctor & Gamble are respectively on 550x, 193x and 321x \u2013 in other words, just random numbers.<\/p>\n

\u201cSo we would argue that, while the NVT may be gaining greater currency among crypto-asset investors, it does not tell anyone a great deal about anything \u2013 or at least not about the asset under consideration.<\/p>\n

\u201cIt might, however, tell us something about the human race\u2019s inherent need for reassurance they are not doing something silly,\u201d he said.<\/p>\n

\n

Read: South African firm closes first equity deal using Bitcoin<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Experts of bitcoin and other so-called \u2018crypto assets\u2019 have started to refer to their own kind of valuation measure \u2013 the network value to transactions (NVT) ratio. However, according to Andrew Evans, fund manager at Schroder Global Value Team, it tells people nothing about valuation.<\/p>\n","protected":false},"author":10,"featured_media":186991,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[961],"tags":[5537],"class_list":["post-215341","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking","tag-bitcoin"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/215341","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=215341"}],"version-history":[{"count":5,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/215341\/revisions"}],"predecessor-version":[{"id":215569,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/215341\/revisions\/215569"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/186991"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=215341"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=215341"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=215341"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}