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Bitcoin Cash Outpaces BTC in Velocity of Money Metric by 6X

TL;DR: The Velocity of Money is an economic signal to determine the activity of an economy. Generally, the higher velocity the more activity occurs and vice versa. A new analysis of velocity trends indicates bitcoin cash (BCH) outpaced bitcoin core (BTC) by about 6x.

Bitcoin Cash Outpaces BTC in Velocity of Money by 6X

A simple definition velocity states “it is the number of times that money moves from one transaction to another. It also refers to how much a unit of currency is used in a given period of time. Simply put, it’s the rate at which people spend money.” The velocity of money is a concept in economics that seeks to measure the dynamism of a given economy by employing the formula V = PQ / M. The total goods & services purchased are divided by the circulating supply to determine how many times a given dollar was used.

According to the Federal Reserve Economic Data (FRED), a database maintained by the Reserve Bank of St. Louis, the U.S. economy’s velocity for M1 supply (see graph above) climbed from about 4 to 10 over the second half of the 20th century, only to fall after the 2008 financial collapse to about 5.5. The M2 velocity (see graph below) followed a positive trend from about 1.7 to 2.2, until a small drop in the early 2000s and a larger reversal after ‘08, to now hover right under 1.5.

In simplistic terms, M1 consists of cash while M2 consists of saving deposits. One could hypothesize that the former measures a medium of exchange’s velocity, while the latter measures that of a store of value. Since an optimal cryptocurrency operates as both, in the long run a healthy range could be viewed as between 1.5 and 6.

Regardless, cryptocurrencies are far below that lower bound, and increases in velocity could be noted as progress. Similar to how social media networks gauge “engagement” on a post rather than just views, cryptocurrency networks could consider velocity as a measure of engagement.

Number Crunching

After compiling data sourced from, we can observe velocities of BCH and BTC. Instead of the traditional formula, we utilized on-chain transaction volume divided by market cap. This gives us an apples to apples translation.

The historical trend of the average quarterly velocity on Pre-Fork BTC was an average of .07, .05, .08, and .17 from 2013 to 2016. The fork resulted in two seperate velocity paths. BTC saw a yearly average of .1, .05, and .04 from 2017 to 2019. BCH saw .09, .04, .21 across the same time period.

The 2013 and 2016 spikes were caused by large amounts of on-chain transaction volume. It appears after a few months of parity post-fork, the two blockchains diverged with BTC having a higher velocity — although it is noticeable both trended in a similar negative direction. The most interesting aspect of the data is the recent drastic uptick in BCH velocity, which rose to a high of .3 over the past few weeks.

Deeper Dive

So what caused the uptick in velocity on BCH? While there was higher velocity during the Q4’17 rally, most of 2018 saw BCH velocity stagnate around .02 until the Hash Warcranked everything up a notch. While the hashing out of the war transpired over November 2018, many fearful bagholders didn’t move their money until the dust settled in December. On-chain transaction volume spiked to a high of $2.78 billion on December 5, 2018. Similar to the volume’s trend, velocity diminished after entering 2019.

Much of the rise in the quarterly average was caused by this unusual economic shock. However, an analysis of the daily average velocity indicates that while the trend has diminished there seems to be a velocity floor. The velocity of BCH ranged from .01-.02 for most of 2018. Now, in March of 2019, it seems far enough away from the Hash War shock to suggest that this new floor of about .1 is a sign of 5x-10x progress.

The Austrian Elephant in the Room

Considering that Austrian Economics is a huge influence on the crypto-verse, it would be bad form if Ludwig von Mises’ critique of velocity wasn’t discussed. Mises didn’t care much for the concept as shown by these excerpts from his masterpiece, Human Action:

The boiled down summary of the critique is that Mises thought economists were falsely extending aggregated mechanical methods of measurement on the human action of individuals. This was a big no-no. The economic information distributed through many unique minds is not easily analyzed by engineering-like formulas. However, there’s something about blockchain that might be worth noting. It’s not just a money, it’s also a transportation system.

Here’s another excerpt from Mises:

Mises didn’t foresee that money could be entangled in a transportation system. From a microeconomic level, this system is maintained by a decentralized organization. This organization would be interested in the activity of its system in the same way that the owner of a shipping company would be interested in increasing the efficiency of how many trips each ship could make.

Mises also mentioned business providers of “water, whiskey, and coffee” don’t care about the services rendered in regards to price. Well, that is true in one sense, but it would hardly be fair to suggest that those providers aren’t keenly concerned with the number of transactions they perform. Whether a crummy cup of coffee or a top shelf whiskey, in regards to price, the quantity still matters.

Thus a compromise of the 20th century Misesian and 21st century crypto strains of thought could be in that the velocity mentioned above is a microeconomic metric employed by decentralized capital owners, and not a macroeconomic one analyzed by state economists.

Enough Velocity to Reach the Moon?

The velocity on BCH is increasing while that of BTC is stagnating or decreasing. Those in the BTC camp might suggest this is supportive of their store of value thesis, but as shown above from M2 (store of value) velocities, they are still well below the target. Alluding back to the social media analogy once more, what would you think of a social network that doesn’t get much engagement? Exactly.

BCH appears to be increasing that engagement, and although the Hash War may have caused a lot of noise, real organic growth might have been overshadowed. The community has been developing applications that are solidifying and providing real economic value. Perhaps the velocity high of .3 was an overshoot, but the floor of .1 rather than .01 indicates the BCH economy is becoming more useful.

Originally published on CoinSpice on March 12, 2019.


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