Does high speed mean high prices for Bitcoin?

Simply put, velocity is a measure of how fast money circulates in the economy. by Bitcoin, the figure is calculated by dividing the volume of on-chain transactions (in USD) by the market capitalization, that is, the inverse of the NVT ratio.

The value of it has increased significantly in 2020, relative to 2019. In fact, the value was relatively higher in June / July 2020 and corresponding to that, the price crossed $ 10k. However, interestingly, the speed of Bitcoin was much higher in the last quarter of 2019 and, most notably, the price did not respond in that case.

Based on Woobull speed graphics, it can be noted that the metric fell in 2018, a fall that coincided with the moment when a greater percentage of the supply was inactive. Bitcoin’s historic bull run was followed by a price drop, starting in early 2018. These concerns led to a drop in investor confidence and Bitcoin looked more like a reserve asset than one in circulation. . In fact, the HODLers held their purchase of the asset above the $ 13k- $ 17k level and only recently started selling above $ 11k or $ 11.5k.

While the current cryptocurrency price spike was induced by several factors, a major factor was the speed of Bitcoin.

In fact, the sum total of the off-chain and in-chain speed has increased YTD. According to a recent research report by Crypto Research, off-chain speed has increased considerably since 2019 and is almost directly proportional to the price of Bitcoin.

Does high speed mean high prices for Bitcoin?

Bitcoin off-chain speed vs. price || Source: CryptoResearch

In reality, this positive correlation developed in March 2019. Since then, there have been two price spikes and the speed of off-chain transactions has only increased. Also, when comparing the speed inside and outside the chain, it can be seen that the speed inside the chain has decreased. However, off-chain is making up for this drop.

Does high speed mean high prices for Bitcoin?Does high speed mean high prices for Bitcoin?Does high speed mean high prices for Bitcoin?Does high speed mean high prices for Bitcoin?

Outside the chain v Speed ​​inside the chain || Source: CryptoResearch

The overall impact of the off-chain speed increase is seen in the price increase above the $ 11k level. the The total speed value at this time indicates that Bitcoin it is in the hands of short-term investors and is more liquid. Retailers keep it as fast cash, rather than as a reserve of assets. In fact, in 2019, the values ​​indicated that it was being retained or accumulated in the long term, and the rise in prices followed shortly after, in mid-2020. In addition, several HODLers as of 2019 they are accounting for unrealized profits in the current cycle.

Since the current value indicates that retail traders should trade / HODL only in the short term, the value may change when volume increases. Retail investors may be more clear on the big picture once velocity picks up to match 2017 or early 2018 levels. For now, charts indicate short-term price spike and short-term build.

This is a machine translation of our English version.

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