Bitcoin is the world’s most popular cryptocurrency. It has been through many ups and downs since its release in 2009. Bitcoin’s velocity has recently hit low levels not seen in a few years. This article will examine why and what insights you can draw from this situation.
What Is Bitcoin (BTC)?
Bitcoin is a decentralized digital token. Its transactions are verified by nodes (computers) and recorded on a public ledger known as a blockchain. Anybody can view all the Bitcoin transactions on the public ledger; you can see what wallet addresses hold a specific number of tokens and any transfer from one wallet to another.
Bitcoin was created in 2009 by a pseudonymous person named Satoshi Nakamoto. The first acknowledged BTC transaction occurred in 2010 when someone paid 10,000 Bitcoins for two Papa John’s pizzas delivered to their home. Since then, BTC usage has soared, and the price of each token has followed.
Bitcoins are now the most popular digital currency worldwide, with a market capitalization of over $500 billion (as of writing).
Bitcoin Peak Price
This token reached an all-time high of $68,789 in November 2021. This period saw a significant boom in the value of many cryptocurrencies, and Bitcoin wasn’t spared. It soared from $60,000 in April 2021 to nearly $69,000 in 2021, enjoying a market capitalization of over $1 trillion. However, BTC didn’t enjoy that wild ride for long.
2022 witnessed a market crash that affected many assets, including cryptocurrencies, bonds, commodities, stocks, etc. Amid the global financial predicament, BTC price steadily crashed to less than half of the token’s peak value.
BTC Velocity At 3-Year Low
Bitcoin’s velocity is at a 3-year low. In an X (formerly Twitter) post on August 25, Ki Young Ju, founder of blockchain analytics platform CryptoQuant, highlighted the multi-year low in this BTC velocity.
Velocity refers to the rate at which a token changes hands. A low velocity indicates that BTC holders are increasingly holding onto their tokens instead of trading them as much as before. The low velocity skews towards large token holders, fondly called “whales.”
This situation has two sides: a positive and a negative. The positive side is that whales are increasingly holding onto their tokens, signaling that they perceive an imminent uptick in the BTC price. Hence, they rather hold their coins than actively trade them.
The negative side is that Bitcoins are not being transferred to new investors as much as before. As the whales hold onto their coins, they reduce the opportunity for newer investors to buy Bitcoins and profit from a possible market uptick.
Of course, people can still buy Bitcoin; it hasn’t become a very scarce commodity. However, supply has been constrained, which makes it more difficult for new investors to get their hands on it.
The BTC market appears to be in “wait and see” mode, unlike at the beginning of this year when many newcomers were buying, and existing holders provided enough supply to meet their demand.
An essential metric to look out for is the BTC/USD trading pair. It is the biggest trading pair in the cryptocurrency sector, as people often exchange the U.S. Dollar, the world’s leading fiat currency, for Bitcoin, the world’s leading cryptocurrency.
The BTC/USD pair has fallen significantly compared to the beginning of this year, indicating a low velocity. A major reason for this downfall is increased regulatory scrutiny from U.S. authorities towards the crypto sector. The U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have filed several lawsuits against leading crypto exchanges like Coinbase, Kraken, and Bittrex, so people are more careful to exchange USD for cryptocurrency.
What Does the Low Velocity Indicate About the Future?
The last time BTC saw a low velocity of this magnitude, it exploded and reached an all-time high the following year. Of course, past performance is not a guarantee of future performance, but it’s worth considering. A Bitcoin price increase could be on the horizon, and investors should be aware.
