Bitcoin settles $20 trillion/quarter: 56x more than Paypal — NVT looks cheap
Figures analysed by ETC Group show that Bitcoin settlement volume hit more than $20 trillion in the fourth quarter of 2021.
That’s 56 times more than Paypal. That’s the weird thing about so-called ‘fintech’. They forgot to include the technology updates. Paypal tech is nothing new. Bitcoin is.
Year-on-year, the amount of value being transferred globally using Bitcoin is a staggering 650 times higher, growing from $3.2 billion in Q4 2020 to $20.8 trillion in Q4 2021.
And despite the massive growth of the network, it remains relatively cheap to use.
The data also show that using Bitcoin is four times cheaper than it was a year ago. In Q4 2020, the average Bitcoin transaction cost the end user $2.42.
Across of Q4 2021, that average fee is $0.70, just 20 cents more than in Q3 2021.
That’s despite the value being sent and received using Bitcoin rising 62.5% from $12.8 trillion in Q3 2021 to $20.8 trillion in Q4 2021.
It is worth re-stating: anyone with a Bitcoin address can send Bitcoin. Anyone with a Bitcoin address can receive Bitcoin. Quickly, securely and at the speed of the internet. No middleman is required.
The conclusion that we must draw, then, is that millions more people are relying on Bitcoin as a way to send and receive value cross-border, without the need for costly and inefficient go-betweens.
Bitcoin is not only far outstripping consumer-focused fintechs like Paypal and Visa. It is gaining ground on nation-state level settlement systems.
As ARK Investment Management analyst Yassine Elmandjra noted: Bitcoin was on pace to settle twice as much value in 2021 as in all of its previous years combined.
According to the researcher, annual Bitcoin settlement volumes are now four times that of credit card giant Visa and approximately 6% of the dollar value settled by Fedwire, the interbank Real Time Gross Settlement system operated by the US central bank, the Federal Reserve.
Bitcoin network throughput — the amount of dollar value transacted on the base layer alone, not even including the Layer 2 Lightning Network — averaged more than $80,000 a second in Q4 2021.
On 18 January 2022 Block (formerly Square) integrated Bitcoin’s Lightning Network onto its popular Cash App, reminding us once again that: “Customers can send Bitcoin internationally from Cash App to any external compatible wallet to a friend, family members, a self-managed wallet, or any merchant that accepts Lightning Network payments, with zero fees.”
Valuing Bitcoin using NVT: Bitcoin’s P/E ratio
The first basic tool for value investors seeking good quality companies is P/E ratio or price to earnings ratio. This number is a measure of how cheap or expensive a stock is (its price) when set against how much money it makes (its earnings).
The standard way to calculate P/E ratio is to look at a company share price and then divide that number by its earnings per share over the last 12 months.
Now, Bitcoin has no company ‘earnings’ per se.
But there is a way to calculate an approximation of its P/E ratio at any given time.
This is NVT: the Network Value to Transactions ratio. It calculates how highly the Bitcoin network is currently valued compared to how much is is being used.
It’s worth noting that Bitcoin made six separate All Time Highs (ATH) in 2021.
NB: On-chain analyst @willywoo created this version of the NVT ratio based on Dmitry Kalichkin’s work. Charles Edwards (@caprioleio) founder of algotrading firm Capriole, added the NVT ratio as a TradingView.com indicator.
Red zones show points where Bitcoin’s Network Value outstripped its Transaction value.
Green zones show where Bitcoin’s Network Value fell below its Transaction Value.
We’re currently in a green zone: using this indicator that would suggest that the transaction value being pushed through Bitcoin’s network today supports a higher valuation than we currently see reflected in the spot price.
Institutional investors scoop up Bitcoin
While markets might look like they are leaning bearish, long-term conviction holders and institutional investors are scooping up Bitcoin at these levels. Data via James Butterfill from CoinShares shows that inflows to digital asset ETPs and ETFs has turned positive two weeks in a row after five solid weeks of outflows totalling $532m.
2021 was a record year for institutional inflows to investment products with $9bn in total flooding into structured products trading on regulated exchanges. The turning point was mid-December last year, where outflows were recorded for the first time after 17 consecutive weeks of net inflows to ETCs and ETPs.
But as James writes: “Digital asset investment products saw inflows for a second week totalling US$19m last week, while small, it continues to suggest investors are beginning to cautiously add to positions at these depressed price levels.”
2022 is likely to be a turbulent year for Bitcoin and crypto markets in general. We might finally have a cryptoasset regulation framework incoming in the US: something we’ve been pushing for since we got into this space. But judging by these metrics, institutional investors see an opportunity at these levels.
[I am the Head of Research at ETC Group, which issues 100% physically-backed crypto ETPs on regulated exchanges throughout Europe, including BTCE (Bitcoin), ZETH (Ethereum), ESOL (Solana), RDAN (Cardano), EXTZ (Tezos), PLKA (Polkadot), BTCH (Bitcoin Cash), STLR (Stellar) and ELTC (Litecoin).]
