On-Chain Metrics Bible: NVT, MVRV, Dormancy & More
What Are On-Chain Metrics?
On-chain metrics are tools that help us understand digital currencies. They show us important information about how people use these currencies. This can help us make better choices when we buy or sell.
Why Are On-Chain Metrics Important?
On-chain metrics are important because they give us real data. This data helps us see trends and patterns. By using these metrics, we can find out if a currency is valuable or not.
Key On-Chain Metrics
There are many on-chain metrics. Here are some of the most important ones:
- NVT Ratio
- MVRV Ratio
- Dormancy
- Active Addresses
- Transaction Volume
NVT Ratio
The NVT Ratio stands for Network Value to Transactions Ratio. It helps us understand if a currency is overvalued or undervalued. A high NVT means the currency may be too expensive. A low NVT means it might be cheap.
MVRV Ratio
The MVRV Ratio is Market Value to Realized Value. This metric shows us the average profit or loss of all holders. If the MVRV is high, many people are making money. If it is low, many might be losing money.
Dormancy
Dormancy tells us how long coins stay in wallets without being used. If coins are dormant for a long time, it may mean people are holding them for a reason. This can show us how confident people are in the currency.
Active Addresses
Active addresses tell us how many unique wallets are used in a certain time. A high number of active addresses means many people are using the currency. This can be a good sign of its popularity.
Transaction Volume
Transaction volume shows how much currency is being traded. A high transaction volume means a lot of activity. This can indicate that the currency is in demand.
Comparison of On-Chain Metrics
| Metric | What It Shows | How to Use It |
|---|---|---|
| NVT Ratio | Valuation of the network | To find if a currency is overvalued or undervalued |
| MVRV Ratio | Profit or loss of holders | To see if many people are making or losing money |
| Dormancy | Confidence in the currency | To understand if people are holding for a reason |
| Active Addresses | Popularity of the currency | To see how many people are using it |
| Transaction Volume | Demand for the currency | To measure trading activity |
Using On-Chain Metrics for Valuation
To value a currency, we can use these metrics together. By looking at the NVT and MVRV ratios, we can see if it is a good time to buy. If the dormancy is high, people might be confident in holding the currency.
Active addresses and transaction volume can show us how popular the currency is. If many people are using it, it might be a good sign for its value.
Conclusion
On-chain metrics are very helpful for understanding digital currencies. By using metrics like NVT, MVRV, and dormancy, we can make better decisions. Always look at these metrics before buying or selling.
FAQ
What is the NVT Ratio?
The NVT Ratio helps us see if a currency is overvalued or undervalued.
How can I use the MVRV Ratio?
You can use the MVRV Ratio to check if many people are making or losing money on a currency.
Why is dormancy important?
Dormancy shows us how confident people are in holding a currency for a long time.
On-chain metrics help us understand digital currencies better.
