MicroVelocity: rethinking the Velocity of Money for digital currencies

TL;DR

This paper introduces MicroVelocity, a new framework for analyzing the velocity of digital currencies by examining individual agents' contributions, revealing heterogeneity, wealth correlation, and the presence of high-velocity intermediaries.

Contribution

The paper presents a novel MicroVelocity framework that analyzes individual contributions to currency velocity using blockchain data, uncovering distributional patterns and intermediary roles.

Findings

MicroVelocity is highly heterogeneously distributed.

MicroVelocity strongly correlates with agents' wealth.

High-velocity intermediaries emerge, challenging decentralization assumptions.

Abstract

We propose a novel framework to analyse the velocity of money in terms of the contribution (MicroVelocity) of each individual agent, and to uncover the distributional determinants of aggregate velocity. Leveraging on complete publicly available transactions data stored in blockchains from four cryptocurrencies, we empirically find that MicroVelocity i) is very heterogeneously distributed and ii) strongly correlates with agents' wealth. We further document the emergence of high-velocity intermediaries, thereby challenging the idea that these systems are fully decentralised. Further, our framework and results provide policy insights for the development and analysis of digital currencies.