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Crypto Metrics (Part 3): Volume
Learn about Volume metrics - Trading volume, Transaction volume, Volume to MarketCap Ratio, Velocity.
Crypto metrics are essential indicators that help investors & traders understand the performance & potential of blockchain tokens.
Volume measures how much of a Blockchain Token was traded in the last 24 hours.
1. Trading volume
Trading volume refers to the total quantity of a specific token that is traded within a given time frame.
If the trading volume is high, it suggests that the token is highly liquid and popular among investors. Conversely, a low trading volume might indicate a less popular token or potentially low liquidity.
The trading volume provides insight into the market activity surrounding a blockchain token. It is a critical gauge of investor sentiment and market confidence.
Example: A sudden spike in trading volume could suggest a significant market event or news about the token, such as a new partnership or technological upgrade.
2. Transaction volume
Unlike trading volume, which focuses on exchange-based trading, transaction volume refers to the total quantity of tokens transferred on the blockchain network.
This metric is not limited to trading activities on exchanges but also includes all token transfers happening on-chain.
A token with a high transaction volume signifies that it is widely used in the network for various transactions, including, but not limited to, smart contract interactions, payments, or fees.
This could indicate that the token has a high utility beyond speculative trading, showing its inherent value within the blockchain ecosystem.
3. Volume to MarketCap Ratio
The Volume to MarketCap Ratio is a significant parameter that provides an additional layer of market sentiment analysis.
Volume to MarketCap Ratio (VMR) is calculated by dividing the 24-hour volume by the Market Capitalization. This is also called Volume Turnover (24H).
VMR = 24-hour volume / Market Capitalization
By comparing the trading volume of a token to its market capitalization (the total market value of a token's circulating supply), we can get a sense of the token's liquidity and activity level relative to its size.
A high ratio suggests a high level of trading activity, potentially indicating investor excitement or panic, depending on the market context.
Conversely, a low ratio could mean the token is in a period of relative stability, with fewer transactions happening compared to its overall market size.
Velocity is a measure of how quickly tokens are moving between wallets in the network. It's calculated by dividing the on-chain transaction volume by the average network value (a rough estimate of the blockchain's market cap).
A higher velocity might indicate that the token is commonly used for transactions and has a high utility in its network. However, high velocity could also suggest that users are not holding onto the token, possibly due to low speculative or inherent value.
Meanwhile, a lower velocity suggests that token holders might be treating the token more as a store of value or a speculative asset, rather than using it for transactions.