Does a higher velocity mean a higher price for Bitcoin?

In short, velocity is a measure of how quickly money circulates through an economy. For Bitcoin, this number is calculated by dividing on-chain transaction volume (in USD) by market capitalization, which is the inverse of the NVT ratio.

The value of Bitcoin has increased significantly in 2020 relative to 2019. In fact, the price was relatively high in June-July 2020, corresponding to the price exceeding $10,000. However, it is interesting to note that the velocity of Bitcoin was much higher in the last quarter of 2019, and it is noteworthy that the price did not react to it in the above case.

Looking at Woobull’s Velocity chart, one can notice that the metric has been declining in 2018, with the timing of the decline coinciding with times when a higher percentage of the supply was inactive.

Since the beginning of 2018, the price of Bitcoin has fallen after a historic bull run. These concerns have led to a decline in investor confidence, and Bitcoin has become more of a reserve asset than a circulating asset. In fact, HODLers have been holding assets above $13,000 to $17,000 until recently, when they began selling above $11,000 or $15,000.

While the current price surge in cryptocurrencies is caused by a variety of factors, one big factor is Bitcoin’s velocity.

In fact, the sum of off-chain speed and on-chain speed has increased. According to the latest research report from Crypto Research, on-chain speed has increased significantly since 2019 and is almost proportional to the price of Bitcoin.

This positive correlation was actually formed in March 2019. Since then, there have been two price increases, and the speed of off-chain transactions has increased. Also, when comparing on-chain and off-chain speeds, it can be observed that the on-chain speed has decreased. However, the off-chain speed is making up for this decrease.

The overall impact of increased off-chain velocity can be seen when the price rises above $11,000. The total velocity value at this time shows that Bitcoin is being held by investors in the short term and with higher liquidity. And, it is being held as fast-moving cash rather than being held as an asset reserve by retail traders.

In fact, as early as 2019, the value indicated that it was long-term holding or accumulation, and the rise in price was shortly after mid-2020. In addition, several HODLers since 2019 are cashing out unrealized profits in the current cycle.

Since current data shows that retail traders should only trade or hold in the short term, this value may change when the volume increases. Once the speed increases to match the levels of 2017 or early 2018, retail investors may have a clearer picture of the big picture. Currently, the chart shows a short-term price increase and short-term accumulation. (Golden Finance)