I have recently been introduced to the concept of token velocity. It is one of those logical things that make you say: "How I didn't think of it on my own?". Just wanted to trow the idea out there and make you aware of this "problem" since I couldn't find any mention of it here on the forum.
Without going deep into definitions or mathematical formulas, token velocity is the speed by which tokens pass trough the system.
There is great example of this made by youtuber Tom from Crypto Gurus:
direct link to the video. Watch the video it will explain token velocity to you much better that I can in this post. There are even few more detailed/advanced videos by the same author but this one I linked should be more than enough to get you thinking.
In short the example used is for some taxi like project where people use tokens to pay for the ride but driver cashes them out immediately after the ride. This results with high token velocity and low demand for the tokens. Same tokens can be used over and over again, there is no incentive to hold them for longer time and thus create a demand. There will always be excess supply of the tokens which will reflect badly on the price.
This is very important to take in the consideration when investing in ICO's or buying tokens on exchanges. People often forget that buying tokens is not the same as buying stocks. With tokens you don't get part of the profits from underlying corporation/entity. It is very well possible that project is successful and tokens are almost worthless because of high token velocity.
At the moment I still believe that most of the investors are unaware of token velocity importance but they will became more aware as crypto currencies markets mature and more institutional investors come into the mix. Maybe this short post will save some of you some money down the road. If so .... mission accomplished.
