Understanding Crypto · Lesson 9 · Advanced

Utility Value vs Speculative Value

You break the price down into a utility and a speculative share and know NVT and its limits.

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Two Price Components

The price consists of utility value (as much of the asset as real usage ties up) and speculative value (the bet on future usage, driven by team and vision). Young assets are almost pure speculation, which is why they are very volatile.

What the price is made of

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NVT measures this roughly: network value divided by on-chain volume, the crypto counterpart to the P/E ratio. High means expensive relative to usage. Goodman calls it partly circular, the denominator is unclean.

Test yourself

Why are very young assets so volatile?

Their price is almost pure speculative value
They have too many coins

What does NVT measure?

Network value relative to on-chain usage
The volatility

Is there a fixed NVT value above which an asset is overvalued?

No, no fixed threshold
Yes, above 90 is always overvalued

The key points at a glance

Utility value ties up supply through real usage, speculative value is the bet on future usage.
Young assets are valued almost purely on speculation, which makes them extremely volatile.
NVT is the crypto P/E ratio, but there is no longer any fixed threshold.

Deep dive

Where a coin's price really comes from

Every crypto price splits into two parts. Utility value is the amount that real usage locks up and removes from supply. Speculative value is the bet on future usage, driven by team, vision and sentiment. The market price is the sum of both.

Burniske: of roughly 16 million bitcoin, about 10 million were locked up by merchants.
Another 5.5 million sat long-term in the largest addresses.
Only about 500000 remained truly free to trade.
The younger an asset, the larger the speculative share and the volatility.

NVT: the crypto P/E and not a timing tool

Cryptoassets have no earnings, so no classic P/E. NVT closes the gap: network value divided by the daily on-chain transferred USD volume, usually as a 30-day average. High NVT means the price has outrun usage.

There is no fixed NVT threshold anymore.
The 'fair anchor' around 50 was specific to 2017 and is no signal today.
Reading NVT above 90 as a sell is false precision.
Exchange-internal transfers inflate the denominator, see NVT Signal.

Garbage in, garbage out: the limit of all models

Burniske's own line is the lesson. Valuations give orders of magnitude, never timing. Stock-to-flow ignores demand, DCF delivers ranges from 343 to 51006 USD. A model that holds everything possible tells you nothing about the next trade.

Use utility versus speculative value as a mental frame for 'how much price is pure hope'. If the price rises sharply while on-chain usage stays flat, speculation dominates and the move becomes prone to reversals.

Sources: Burniske/Tatar, Goodman, Graham

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