Nvidia And Bitcoin: Overpriced Or Underpriced - Do Fundamentals Justify Their Trillions Of Dollars Worth Of Market Caps?

Aniket Verma

August 28, 2024

Cryptocurrencies and stocks are considered risky investments, and traders frequently employ metrics to determine how justified their market value could be.

Assessing Nvidia’s Valuation

One very popular valuation metric is the price-to-earnings ratio, or simply the P/E ratio.

It measures the relationship between the market value of a company's stock and a fundamental financial metric, in this case, its earnings. Put simply, this ratio indicates whether a stock at its current market price is expensive or cheap relative to its fundamentals.

AI powerhouse NVIDIA Corp. (NASDAQ:NVDA) has enjoyed a phenomenal run on the market this year, rising 160% year-to-date and emerging as a barometer of broader sentiment for stocks.

The tech titan also reported its second-quarter numbers after Wednesday's market close, disclosing earnings and revenue that more than doubled from a year ago and bettering the numbers from a quarter ago.

According to charting platform Trading View, Nvidia's P/E ratio was 73.478 as of this writing, indicating that the stock was highly overpriced. It could also imply that investors expect the company to have stronger performance and higher earnings in the future.

Since October last year, the ratio has oscillated between 77 and 50, meaning the current value was closer to range highs.

See Also: Donald Trump’s Pro-Bitcoin Stance Influenced Ethereum ETF Approval, Analyst Posits

What’s In Store For Bitcoin?

The P/E equivalent for Bitcoin (CRYPTO: BTC), the cryptocurrency market bellwether, is the network value to transactions ratio, or NVT ratio.

Since Bitcoin doesn't report earnings like public companies, the fundamental metric used here is on-chain transfer volume, a proxy for network usage.

According to blockchain analytics firm CryptoQuant, NVT ratio’s 30-day EMA stood at 27.55 as of this writing, a significant decline from 33 in June. A lower NVT indicated that Bitcoin's transaction volume outpaced its market cap growth.

Historically, this has been linked to accumulation opportunities and bullish trends.

It's worth noting that since December 2022, Bitcoin's NVT ratio has remained stable within the 20-28 range.

Price Action: At the time of writing, Bitcoin was trading at $59,121.48, down 0.11% in the last 24 hours, according to data from Benzinga Pro. Shares of Nvidia closed 2.10% lower at $125.61 during Wednesday’s regular session.

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