NVT Score

NVT Score (Network Value to Transactions) Compares a cryptocurrency's market capitalization to its on-chain transaction volume, helping assess whether the network is overvalued or undervalued and identifying periods of high speculation or underuse.

1. The NVT Golden Cross is an on-chain indicator designed to provide insights into whether a cryptocurrency is overvalued or undervalued by comparing its market capitalization to its transaction volume. The Golden Cross version adds moving averages and standard deviations to enhance the basic NVT indicator, helping to identify potential buy or sell signals based on market activity.

• NVT Ratio: Compares the market value (market cap) to the transaction volume.

  • High NVT indicates the asset is overvalued (possible bearish signal).

  • Low NVT indicates the asset is undervalued (possible bullish signal).

• NVT Golden Cross: Enhances the NVT ratio by calculating a 10-day moving average (MA10) and a 30-day moving average (MA30) of the NVT value. When these moving averages cross, it generates signals:

  • Bullish Signal: When MA10 crosses above MA30.

  • Bearish Signal: When MA10 crosses below MA30.

How the NVT Golden Cross Works

1. Market Value: The total value of all coins in circulation (Market Capitalization).

   • Market Cap = Price × Circulating Supply

2. Transaction Volume: The total value of coins transacted over a specific period.

3. NVT Ratio:

   NVT=Market CapTransaction Volume\text{NVT} = \frac{\text{Market Cap}}{\text{Transaction Volume}}NVT=Transaction VolumeMarket Cap​

4. Golden Cross: A cross occurs when the 10-day moving average of NVT (MA10) crosses above or below the 30-day moving average (MA30). This crossing is further normalized using the Z-Score method, which compares the deviation of the NVT difference from its standard deviation.

How to Interpret NVT Golden Cross Signals

• Bullish Signal: When the 10-day moving average (MA10) crosses above the 30-day moving average (MA30), it indicates that the market is gaining momentum and may be entering a bullish phase. This is often considered a buy signal.

• Bearish Signal: When the MA10 crosses below the MA30, it suggests the market is losing momentum, signaling potential downside risk. This is often considered a sell signal.

• NVT Golden Cross Z-Score: When the difference between the MA10 and MA30 is significantly above or below the standard deviation, it can indicate extreme market conditions, further reinforcing the buy or sell signals.

Data Needed for Calculation

To calculate the NVT Golden Cross, the following data points are required:

1. Market Capitalization:

   • The current market value of the cryptocurrency at a specific time interval (e.g., daily).

2. Transaction Volume:

   • The total volume of transactions processed on the network over the same time period.

3. Moving Averages:

   • The 10-day moving average (MA10) of NVT values.

   • The 30-day moving average (MA30) of NVT values.

4. Standard Deviation:

   • The rolling standard deviation of the NVT differences over a 300-day window to normalize the NVT cross values.

Conclusion

The NVT Golden Cross is a refined on-chain metric that provides valuable insights into the cryptocurrency market’s valuation trends. By incorporating moving averages and standard deviation, the NVT Golden Cross helps traders and investors identify key turning points in the market, aiding in decision-making around when to enter or exit positions.