NVT Updates - Assets With the Best Token Circulations vs. Their Respective Market Caps

Apr 13, 2020

We have visited the NVT metric once before since the relaunch of our signals newsletter, and with markets now a month past Black Thursday and asset transactions becoming more established, this is a prime time to provide updates. For those unfamiliar with how we track NVT, please check out this article and read all about the model we have created on Sansheets for public use by our Sanbase Pro members.

Looking at NVT’s this month, we have seen a rather split series of signals over the variety of assets this model covers. The percentages shown below represent the difference between the previous days’ NVT outputs (market cap divided by token circulation) and the average NVT of the four trendlines that are used to track each coin’s long-term ratio. This is done because not all ratios are the same for every asset.

For example, Bitcoin’s NVT of 140 is considered bearish by our model’s standard, but that same 140 output would be considered bullish for Ethereum. It’s all a matter of perspective in how each individual asset’s NVT measures up against its own personal historical values. All this being said, this table represents the percentage above or below each current asset’s NVT looks compared to the average expected NVT it has output over the previous months and years:

As we can see, these percentages vary wildly. The leftmost column closest to the coin ticker is a weighted formula that measures how the last 10 days of token circulation NVT’s have looked, with an emphasis on the more recent days. We look for divergences between how far below or above these percentages are from “0%” to find solid buy and sell points.

As we look at the table above, it appears that two projects have been getting a very healthy amount of token circulation compared to their market caps (GNT and STORJ). Let’s take a quick look at each of their respective charts:

Golem (GNT) has had several months now of bullish signals (represented by the four rightmost green bars) on our model’s chart. This is implying that the market cap of GNT is low compared to how many individual tokens are moving addresses over time. The current month shows that the bar is still well below the green, red, blue, and yellow trendlines above it, including the past three days showing that they have even been below April’s average NVT by a healthy margin.

Storj (STORJ) shows a similar story:

As we can see, April represents a third straight month for STORJ being in bullish territory and well below the trendlines for this asset. Like every other coin in crypto, it took a major hit when Bitcoin pulled back 50% in a single day in mid-March and dragged altcoins like STORJ with it. However, STORJ has been ascending slowly and steadily ever since. Our model shows there is still plenty of room to grow with unique tokens being exchanged at record paces for the coin right now.

On the other end of the spectrum, the two largest coins, Ethereum and Bitcoin, have actually slowed their token circulation substantially as economic factors are likely playing into an uncertain market right now. And when these assets are not getting a healthy output of token circulation compared to their respective market caps, their NVT’s creep into the bearish territory like they are starting to do so after a great recovery after Black Thursday last month:

We can see that Ethereum’s colored bar for our current month, April 2020, is highlighted in yellow currently. This represents that we’re in neutral territory based on the 12 days of data we have so far for ETH’s NVT. Before this past weekend, we were actually seeing a bullish signal just like we saw for the roller coaster month of March that saw prices pull back all the way to approximately $85 before recovering rapidly into early April.

This neutral bar is a bit misleading, because most recently, as we can see from the “1 Day” label in the top right of the graph, the NVT was actually extremely poor on Sunday (lower is better), and it was actually off-the-chart poor on Saturday. Market sentiment seems to be a very wary and cautious bag right now, and when this happens, we will see trading tend to “freeze up” and wait for a bit move in one direction or another. For ETH, the current price at the time of this writing of ~$153 seems to be one of uncertainty. So although this chart implies that the #2 market cap coin is a wait and see, based on the last couple of days, we wouldn’t be surprised to see prices sink to the $140’s before finding some alleviation in its high NVT.

As for Bitcoin, this one is extremely important considering that all assets are going to be fairly pegged to however BTC’s token circulation dictates prices should be moving to in the near future:

Just like ETH, Bitcoin had a pretty uninspiring weekend full of very few transactions compared to what it had been seeing ever since February ended its 7-month streak of bearish signals. Before this weekend, it was neutral, but now we are seeing a semi-bearish color. This means we advise that traders be extremely cautious with transaction volume indicating there is a large amount of reluctance at this current time.

BTC saw a large amount of polarization after Black Thursday sent prices down to lows of around $3,700 a month ago. This caused a large degree of token circulation with buys and sells firing off rapidly as some exited markets in fear of things getting worse, while others (correctly) saw it as an opportunity to scoop up the asset at a discount. Now that this reactionary increased transaction volume has died down, we’re beginning to see the more true effects of this pandemic without the historic volatility we saw last month. And the verdict is that there is some obvious fear that is preventing BTC from circulating between addresses the way it was in late January and all of February.

Referring back to the table we mentioned at the top of this article, BTC is sitting at a weighted average of 59.79% over the average NVT trendlines right now on our model. We will want to see a weighted average of under 0% and go into the negatives to signify a healthy undervaluation based on token circulation, the way we’re seeing for GNT, STORJ, SNT, LINK, and BAT right now.

If Bitcoin can start off the week with more healthy looking daily NVT outputs, things will begin to look more optimistic for all of crypto. But if things stay where they are for the rest of April, we will likely see very little movement past this testing resistance level of the low $7,000’s, and will more likely start to decline toward the low $6,000’s. And for these assets that are signaling their undervaluations right now, it will be up to BTC getting healthy enough circulation to allow prices of these other coins to reach their potentials that our model is indicating they should. We’ll be sure to check back on how NVT is looking for all assets mentioned next week, so check back in with us then!

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