Everywhere I look, there’s someone drawing triangles on a graph to show me why cryptocurrencies are going to go up or down. That’s Technical Analysis (TA), and it has its place. But Fundamental Analysis (FA) is another bedrock of equities investing that seems to have been completely overlooked.

When is a triangle…just a triangle?

It’s understandable, though: blockchain technology is still so new that we’re all trying to figure out how to value it. TA is just easy. You can look at the historical prices of Bitcoin and draw a “line of best fit” to predict the future price. FA is harder, even in equities. You have to read through accounting paperwork and try to make sense of it all. I’m no accountant, but I learned a long time ago the value of the PE ratio, one of many FA metrics. (Warren Buffet’s favourite indicator is another good one, but that will have to wait for another article.)

This brings us to cryptocurrencies; how does one even try to valuate a blockchain network like Ethereum? It’s not like a corporation that has to report earnings and revenues and expenses. So what then? What do networks have of value (that we can measure)? Transactions are the obvious one, and already people are starting to use metrics like the Network Value to Transactions (NVT) ratio.

I like NVT, but it seems incomplete. So I started futzing around on Etherscan and fiddling around in R and came up with this: