The formula involves dividing Bitcoin’s market cap or “Network Value” by the total volume of transactions transmitted across the network.
Volume in this case is the total number of BTC on the move multiplied by the current market price.
When network value greatly outpaces the volume being transmitted across the network, it’s a signal that Bitcoin is currently overvalued. The inverse is also true.
Because it predicts when Bitcoin price is over or undervalued compared to the transactions across its network, the NVT tool is used to spot potential tops and bottoms in the cryptocurrency.