## The evaluation of crypto assets in terms of traditional finance does not seem as obvious as it might seem at the first glance. 

![](https://steemitimages.com/DQmewvvEwRHFthToNZqsNqk7Up92RaSz1dicXJUkVy9FxYj/image.png)


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The difficulties experienced by professional investors, financiers and bankers, in the qualification of, for example, Bitcoin, as an object of investment, testify to this. Institutional investors are extremely slow to crawl into the industry and this reflects the lack of understanding of the market by professional financiers. The other day, [Goldman Sachs announced the beginning of trading derivatives on the price of Bitcoin](https://www.nytimes.com/2018/05/02/technology/bitcoin-goldman-sachs.html), despite the fact that the bank is not going to directly purchase cryptocurrency. Close monitoring of cryptomarket also shows the insufficiency of such characteristics as price or capitalization, since both price and capitalization (especially) are extremely prone to manipulation of metrics due to the insufficient institutionalization of the industry (first of all, a large number of firms that have a trademark and associated reputation). The very characterization of "reputation" in the context of the crypto-currency market is extremely inadequate if one remembers the maximum of 'Veres in Numeris' and the average life of projects on the cryptocurrency market.

On the one hand, Bitcoin protocol is a communication service, on the other hand, is a payment system. In the modern world, such entities are realized by individual companies (like Twitter and Visa), due to various kinds of problems that they want to solve. For any social network, it is more logical to assess the audience, at the same time, the assessment of the volume of funds transferred is more actual for a payment system. Bitcoin has a decentralized nature, and in the context of one aspect or another, either the number of nodes or the number of unique addresses can be estimated.

Recently, [Arxiv published an article](https://arxiv.org/abs/1803.05663) on the indicator based on the [Meltcalfe law](https://en.wikipedia.org/wiki/Metcalfe%27s_law), which was additionally adapted to the development of the bitcoin protocol in terms of the exponents of multipliers. This law is often used to evaluate networks and is often mentioned in the discussion of Bitcoin's fundamental characteristics. The formula of the indicator in the work is as follows:

![](https://steemitimages.com/DQmfNyBNWD1NgoAgiqasRLJiuWQRJnreApYDErujrJGawuJ/image.png)
*Market-to-Metcalfe (MMV): market volume p(i) at time t (i)) divided by the network effect Metcalfe with parameters (α 0 = -3, β0 = 2)*

> The work as a whole explores the indicator in more detail that will be mentioned in this article. It is important to emphasize that this indicator is based on the network effect of blocking, as a single-level peer2peer communication network, which also occurs in social networks, telephone operator networks, messengers, etc.

The second rather illustrative indicator was developed as an analogue of the [Price-to-Earnings](https://www.investopedia.com/terms/p/price-earningsratio.asp) relation (Price-To-Income), used as the primary method of valuing an asset, for example, Apple shares, in stock markets. The first notable mention of [NVT (Network-Value-to-Transaction)](http://charts.woobull.com/bitcoin-nvt-ratio), analogue of P / E, belongs to the author [Willy Woo](https://twitter.com/woonomic). The basis of this indicator is almost the same as the ratio of the total market capitalization in USD to the total number of transactions carried out inside the bitcoin blockchain at the current rate of BTC / USD. This indicator reflects the generally implemented capabilities of the protocol network Bitcoin is a means for making payments and shows when Bitcoin is overvalued relative to its basic function as digital money. Let's compare the described indicators on the chart.

![](https://steemitimages.com/DQmS4cx9ReTuakaPQWoWLDFTsfn9prFo9Cu6kUqaL3So1au/image.png)

If you draw them according to the date, it is clearly seen that both MMV and NVT are excellent means of distinguishing between the "bubble" phase and the consolidation phase, when the blockchain adequately performs its function, without excessive excitement. The third chart, FVT (Fee-Value-to-Transaction) shows the ratio of the value of the total commissions to the total volume of transactions. This indicator will not be studied in detail in this article, but in this case, it perfectly characterizes the situation at the end of 2017, when excessive excitement, media attention, and not optimal work of exchanges, led to a jump in commissions above previous highs caused by spam attacks during the civil war forks.

The two indicators described do not claim to be exhaustive characteristics and advanced tools in deciding to enter the market, but at least they are oriented towards public direct characteristics of the blockchain, which are impossible (or very expensive) to manipulate. An open question is the levels of the indicators described, for example, future levels of the relationship associated with the bubble phase or consolidation of NVT or MMV may be subject to bias in one direction or the other (for MMV, the Metcalfe law constants may also change).

![](https://steemitimages.com/DQmVN3NRWMw6F48CcLbWdu98xUfxQx7zsbhgw1ri43mYFp7/image.png)