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Author: Admin | 2025-04-27
Failed to explain the 2017 crypto bull market when the NVT ratio was below its normal range, thus indicating undervaluation. The NVT ratio also failed to identify the 2018 crypto bear market when there was clearly a market collapse while the NVT ratio remained in its normal range. Despite the shortcomings of the NVT ratio, Woo earned his reputation as a pioneer of token valuation related research and deserves a big shout-out.Price-to-Utility RatioToken utility is defined astoken utility=(token velocity*staking ratio)/dilution rate,where the dilution rate measures the annual growth rate of the token supply. Assuming no other differences, a high dilution rate makes the token less appealing, thus leading to a lower token utility. The figure below demonstrates that the dilution rate of Bitcoin has significantly decreased over the past decade. As of May 2019, the dilution rate is around 3.8 percent. A halving event of the BTC supply is expected in one year. By that time, the dilution rate will have fallen below 2%, which is the common inflation rate targeted by major central banks.Token velocity measures the percentage of tokens transacted over the past 24 hours relative to the token supply. A large token velocity signifies an increasing usage of and demand for the token. It leads to a high token utility.As for Bitcoin and some other major cryptocurrencies, quite a substantial number of tokens are inactive for more than a year. These inactive tokens serve as a store of value and can be referred to as “staked tokens”.
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