What Is Token Velocity?
Token velocity is the average number of times a token or coin changes hands within a defined period. If the velocity of a digital currency is high, the cryptocurrency moves from person to person frequently. On the other hand, if the velocity is low, the currency seldom changes owner. Token velocity influences the long-term, non-speculative value of an asset.
A Deeper Look at This Term
High token velocity is an indicator that asset owners are not willing to hold on to the digital currency after the time of purchase. In other words, the owner would rather sell the coin or token to keep another asset. High-velocity cryptocurrencies are usually low in demand and thus low in price.
By contrast, low token velocities mean that owners are holding the cryptocurrencies, rather than selling them. Since people are not willing to sell their coins or tokens, the value of the asset increases, driving its price upward.
This property is crucial when launching new cryptocurrencies as it directly affects its performance in the marketplace.
For reference, the velocity of the US dollar at the end of 2019 was 1.427. That means that, on average, a dollar changed hands 1.427 times. This low number means that not many persons were using cash on hand to buy goods and services.
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