Thoughts on cryptoasset liquidity.
Some Cryptocurrencies have poor liquidity, yet marketcaps in the hundred of millions. The relationship between network value and liquidity is captured in the NVE ratio. It can be used to indicate risk from poor liquidity.
Calculate it by dividing USD Network Value with USD Exchange Volume.
If the NVE ratio is high, it’s an indicator that liquidity is low in relation to the network valuation. It’s an indication that relative small money could move the price significantly. The network value might be based on a few players exchanging small money. Sudden increase in exchange transactions might create a lot of volatility. With a high NVE, price and network value could be artificially high. The price could be fake.