All about Crypto Velocity

Velocity measures the rate at which a crypto is exchanged globally.

In conventional economics, the velocity of money is the ratio of nominal gross domestic product (GDP) to the money supply. It is a metric that is used to gauge two things - people’s willingness to spend money and an economy’s strength.

When more transactions are happening, velocity increases and the economy is likely to expand. Conversely, when fewer transactions are happening, velocity decreases, and the economy is likely to shrink.

I believe that this concept can and must be applied to cryptocurrencies (cryptos).

1. What is Crypto Velocity?

The velocity of a crypto measures the rate at which the crypto is exchanged globally and is calculated as:

Velocity = 24h Volume / Circulating Supply

Cryptos can be of various types, most commonly store of value, medium of exchange, and utility cryptos. For these cryptos, velocity is a very useful metric.

There are also wrapped cryptos that are pegged to assets like commodities, equities, intellectual property, etc. Since these are totally dependent upon the pegged assets, their velocities may not be very relevant. The same could be said for governance tokens, dividend-paying cryptos, and security tokens.

As of 6th August 2021 (09:19 UTC), the velocity of some popular cryptos is:

Source: Future Money Wallet

2. Proposed benchmarks

I propose the following Crypto Velocity benchmarks:

1. Benchmark Velocity for "store of value" cryptos = 652

2. Benchmark Velocity for "medium of exchange" cryptos = 111

3. Benchmark Velocity for "utility" cryptos = 64

The rationale:

1. For store-of-value cryptos, the benchmark is the average velocity of Bitcoin (BTC) over 2770 days from 27-Dec-2013 through 27-Jul-2021.

2. For medium-of-exchange cryptos, the benchmark is the average velocity of Bitcoin Cash (BCH) over 1457 days from 1-Aug-2017 through 27-Jul-2021.

3. For utility cryptos, the benchmark is the average velocity of Ether (ETH) over 2182 days from 7-Aug-2015 through 27-Jul-2021.

3. Stablecoin Speed

For stablecoins, I propose a slightly altered formula:

Speed = (24h Volume / Market cap) x 100.

As of 6th August 2021 (09:19 UTC), the speed of the most popular stablecoins is:

Source: Future Money Wallet

I would love to hear your views on Crypto Velocity and Stablecoin Speed.