Explanation

A velocity of 500% means that a bitcoin moves five times within a year. The higher the velocity, the more active the coin supply is. This can happen during periods of growing on-chain activity when there is an increasing network demand, but the same principle can also be applied in reverse.

High velocity is associated with bull markets, yet at periods of high prices (e.g. major market tops), you would expect to see velocity decline as fewer coins are required to transfer large amounts of value. Equally, after a price fall, more coins are required to transfer a dollar equivalent amount of value, and velocity will recover. If velocity does not recover after a price fall, the network activity is showing signs of structural decline, which points to a bearish signal.