Is the crypto economy at risk of a recession? Research shows Bitcoin and Ethereum transaction speeds slowing

Charts can reveal a lot about crypto assets. Past performance and future indicators can be seen at a glance, but there is much more that can be determined further. A study of several of the most popular blockchains, including Bitcoin and Ethereum, shows that transaction velocity has reached its lowest level in years. Cryptocurrencies are moving at a slower pace, suggesting that a crypto recession may be possible.

The transaction speed began to slow down

Until recently, the cryptocurrency market was thought to be largely disconnected from the traditional financial world. The dynamics of the latter had little impact on the former, but when the stock market plummeted a few weeks ago, Bitcoin also fell. This could be just a coincidence, or, as the lines separating Wall Street and cryptocurrencies become increasingly blurred, it could be newfound evidence of the two markets' interdependence. Cryptocurrencies are not immune from significant and prolonged declines, of course, but a "crypto recession" is a new prospect.

Velocity is a common metric that measures the rate at which money changes hands, or in the case of cryptocurrencies, changes wallets. High velocity means that a unit of money is frequently reused to buy goods and services. When people spend, it means they are not worried about what will happen tomorrow or a recession. Cryptocurrencies are more than just a form of digital cash, and velocity can still be used to measure the extent of cryptocurrency use, and data shows that it has slowed down.

Bitcoin will return to 2015 levels  

As news.bitcoin.com reported last week, the number of on-chain transactions has fallen to less than half of its December peak. This is thought to be due to high fees keeping the price of Bitcoin too high, forcing people who hold Bitcoin to hoard it rather than use it. In addition to the drop in transactions, Bitcoin's transaction velocity is at its lowest level since 2015, the Coinmetrics report said. The concept of Bitcoin as a means of value, which was heavily promoted by Bitcoin Core supporters last year, may be a reason for its slow transaction speed. But what about other cryptocurrencies that are not weakened by high fees?

Ethereum's transaction velocity (depicted in red) has dropped dramatically since January and is now back to where it was in early 2017. At the time, ETH was trading at $14. Ethereum isn't used as a store of value, but people seem to be more inclined to hold it than use it right now, even though there's no question about a person holding ether. Coinmetrics has also produced a chart for zcash that shows the same pattern, and to a lesser extent, litecoin.

Coinmetrics concluded, "In this sample, the velocity of assets is slower than usual. (People are transacting less, spending less, etc.). When this happens with USD, it's usually a sign of a recession." It's hard to say for sure if this is happening with cryptocurrencies. But it's a strong possibility. If cryptocurrencies were growing rapidly, we'd have more reason to believe they'd be hoarded, but most assets have been stagnant or declining since mid-January. In fact, Bitcoin's price is more stable than it was a few months ago, but the velocity has slowed down. Either everyone is preparing for the next surge, or a crypto recession is brewing.