Since the coronavirus market plunge, the stock market has made historic gains. pointer Standard & Poor’s 500 More than doubled in value, marking the strongest bounce we’ve ever seen from the bottom of a bear market.
But things were a little better in the cryptocurrency space. In the 20 months since the cryptocurrency market hit its valuation bottom, the total value of all digital currencies has risen from $141 billion to nearly $2.6 trillion. Investors are clearly excited about the game-changing potential of blockchain and digital tokens.
Ranking of the largest cryptocurrencies by average holding period
However, there is one thing that is particularly interesting about the cryptocurrency space: keeping time for investors.
Last year, Reuters reported that the average holding period for stocks was around 5.5 months, as of June 2020. This was down from 8.5 months in December 2019. But with cryptocurrencies, average holding times are often measured in days. Due to the inherent volatility of the crypto space, we are seeing more people swing trade and chase momentum, rather than “hodl” (i.e. wait).
How do we know this? Leading Cryptocurrency Exchange System Coinbase Global It provides average holding time data for many of the largest digital currencies that can be bought and sold on its platform. After excluding some of the big and popular stablecoins, here’s how the 21 largest cryptocurrencies on Coinbase are ranked by average holding period (as of December 2, 2021):
- Litecoin (CRYPTO: LTC): 93 days
- Bitcoin (CRYPTO: BTC): 75 days
- Cardano : 72 days
- Ethereum (CRYPTO: ETH): 71 days
- ribbed: 70 days
- chain link: 66 days
- Bitcoin Cash: 54 days
- Algorand: 47 days
- Dogecoin (CRYPTO: DOGE): 42 days
- Ethereum Classic: 38 days
- Shiba Inu (CRYPTO: gray hair): 31 days
- Uniswap: 29 days
- dotted: 27 days
- excellent: 24 days
- Solana (CRYPTO: SOL): 22 days
- decentralization: 15 days
- philicoin: 15 days
- Axi Infinity: 11 days
- Avalanche (CRYPTO: AVAX): 9 days
- Crypto.com currency: 9 days
- wrapped bitcoin: 4 days
Blue chip coins are often held the longest
Perhaps the least shocking thing about this arrangement is that the longest held coins tend to be what we call “blue” cryptocurrencies. These are the well-established currencies and projects that investors have long been looking for to stabilize the cryptocurrency space.
For example, Bitcoin has the second longest average holding period of any of the largest digital currencies. Since it was the first cryptocurrency to be traded on an exchange, and the most used currency around the world, it comes as no surprise that investors are holding onto their bitcoin for longer than most other cryptocurrencies. In addition, a gain of 7,000,000,000% over 11 years will encourage investors to act together.
The same can be said of Ethereum, which was the first project to integrate smart contracts on the blockchain. Smart contracts help verify, facilitate, and enforce the negotiation of a contract between two parties. Smart contracts are the secret sauce that allows decentralized finance (DeFi) and decentralized non-financial (dApp) applications to be developed on the Ethereum blockchain.
Then there is Litecoin, which is often seen as the “silver” version of Bitcoin. Litecoin offers a similar long-term benefit to Bitcoin, but has historically been able to process transactions faster and at a lower cost than the world’s leading cryptocurrency.
Inevitable fluctuations lead to smaller holding times
Another thing that is readily apparent from these rankings is that periods of increased volatility tend to attract momentum and swing traders. In other words, the average holding time often drops dramatically when a coin becomes highly volatile or gains significant bullish momentum.
Two good examples here are Solana and Avalanche, which have average comment times on Coinbase of 22 and nine days, respectively.
Solana raises some serious eyebrows due to the speed and scalability of its blockchain network. While Bitcoin (prior to the Taproot upgrade) and Ethereum process 7 and 13 transactions per second (TPS), Solana has the capacity to deliver 50,000 TPS. This is twice as fast as the payment processing giant Visa. Solana’s unique history-proving protocol and the speed of its network give it much of its real-world appeal.
Meanwhile, Avalanche runs thousands of blockchain nodes, processes over 4,500 TPS, and offers transaction endings in less than two seconds. With the Ethereum Virtual Machine running on the Avalanche blockchain, the low costs and blazing speeds should encourage DeFI and dApp developers to migrate.
Although these coins have moved up the market cap rankings, they have been very volatile. The avalanche came close to doubling in November, while Solana’s rate recently rose more than 14,000% year-over-year. Wild moves attract swing traders, which will affect the usual waiting time.
The jury is out on meme coins
The last thing worth noting from this list is the meme coins: Shiba Inu and Dogecoin.
The Shiba Inu area has seen a significant increase in its average holding period over the past five weeks. When SHIB was on the moon in late October, the average wait time was just six days. However, with Shiba Inu losing more than 50% of its value in the five weeks following its all-time high, the momentum and swing trading has moved to greener pastures, it seems.
But even if that was the case, the one-month waiting period does not inspire confidence that scammers really believe in the long-term project. With a market capitalization of $23 billion and no competitive advantages or differentiation, Shiba Inu is a good candidate to undergo a significant price rebound after gaining more than 57,000,000% in less than a year.
By comparison, Dogecoin has seen its average holding time shrink modestly to 42 days from about 50 days two weeks ago. Like Shiba Inu, Dogecoin has relied on social media hype and hype to maintain momentum for its token. But with DOGE losing more than 70% of its value since its all-time high in May, maintaining strength has become almost impossible.
Like Shiba Inu, Dogecoin lacks anything resembling a competitive advantage. Its transaction fees are much higher than most payment currencies, and according to Cryptwerk Online Business Directory, it has not yet reached 2,000 merchants willing to accept DOGE eight years after its debut.
The jury remains out of these two meme coins.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.