Since the coronavirus bear market bottom, the stock market has delivered historic gains. The benchmark S&P 500 has more than doubled in value, marking the strongest bounce we've ever witnessed from a bear market trough.
But things have been a wee bit better in the cryptocurrency space. In the 20 months since the crypto market hit its own valuation bottom, the aggregate value of all digital currencies has soared from $141 billion to close to $2.6 trillion. Investors are clearly excited about the game-changing potential of blockchain and digital tokens.
Ranking the biggest cryptocurrencies by median hold period
Yet, one thing strikes as particularly interesting about the cryptocurrency space: investors' hold time.
Last year, Reuters reported that the average holding period for stocks was about 5.5 months, as of June 2020. This was down from 8.5 months in December 2019. But with cryptocurrencies, median holding periods are often measured in days. Given the volatility inherent in the crypto space, we're seeing more people swing trade and chase momentum, rather than "hodl" (i.e., hold).
How do we know this? Leading cryptocurrency exchange and ecosystem Coinbase Global provides median hold time data on many of the largest digital currencies that can be bought and sold on its platform. Having excluded some large but popular stablecoins, here's how 21 of the largest cryptocurrencies rank on Coinbase by median holding period (as of Dec. 2, 2021):
- Litecoin (LTC -2.49%): 93 days
- Bitcoin (BTC 1.80%): 75 days
- Cardano : 72 days
- Ethereum (ETH -0.65%): 71 days
- Polygon: 70 days
- Chainlink: 66 days
- Bitcoin Cash: 54 days
- Algorand: 47 days
- Dogecoin (DOGE -1.36%): 42 days
- Ethereum Classic: 38 days
- Shiba Inu (SHIB -2.19%): 31 days
- Uniswap: 29 days
- Polkadot: 27 days
- Stellar: 24 days
- Solana (SOL -1.13%): 22 days
- Decentraland: 15 days
- Filecoin: 15 days
- Axie Infinity: 11 days
- Avalanche (AVAX -0.27%): 9 days
- Crypto.com Coin: 9 days
- Wrapped Bitcoin: 4 days
Blue-chip coins are often held longest
Probably the least-shocking thing about this ranking is that the longest-held coins tend to be what we'd call "blue-chip" cryptocurrencies. These are the established coins and projects that longtime investors look to for stability within the cryptocurrency space.
For instance, Bitcoin has the second-longest median hold period of any of the biggest digital currency. Since it was the first cryptocurrency to trade on an exchange, and is the most widely utilized coin worldwide, it's not all that surprising that investors are hanging onto their Bitcoin longer than most other digital currencies. Plus, a 7,000,000,000% gain in 11 years will encourage investors to hodl.
The same can be said for Ethereum, which was the first project to incorporate smart contracts on blockchain. Smart contracts help to verify, facilitate, and enforce the negotiation of a contract between two parties. Smart contracts are the secret sauce that allows for the development of decentralized finance (DeFi) applications and nonfinancial decentralized applications (dApp) on the Ethereum blockchain.
And then there's Litecoin, which is has often been viewed as the "silver" version of Bitcoin. Litecoin offers similar long-term utility to Bitcoin, but has historically been able to process transactions faster and for a lower cost than the world's leading cryptocurrency.
Volatility inevitability leads to smaller holding periods
Something else readily apparent from these rankings is that increased periods of volatility tend to attract momentum and swing traders. In other words, the median hold time often drops considerably when a coin becomes highly volatile or gains significant upside momentum.
Two good examples here are Solana and Avalanche, which have median hold times on Coinbase of a meager 22 days and nine days, respectively.
Solana is raising some serious eyebrows given the speed and scalability of its blockchain network. Whereas Bitcoin (prior to the Taproot upgrade) and Ethereum have been processing a respective 7 and 13 transaction per second (TPS), Solana has the potential to deliver 50,000 TPS. That's more than twice as fast as payment-processing giant Visa. Solana's unique proof-of-history protocol and the speed of its network give it plenty of real world appeal.
Meanwhile, Avalanche operates thousands of blockchain nodes, is processing more than 4,500 TPS, and offers a transactional finality of less than two seconds. With the Ethereum Virtual Machine operating on Avalanche's blockchain, low costs and blazing-fast speeds should encourage DeFI and dApp developers to migrate.
Although these coins have risen the market cap ranks, they've been extremely volatile. Avalanche came close to doubling in November, while Solana was recently up more than 14,000% on a year-to-date basis. Wild moves attract swing traders, which will weigh down the typical hold time.
The jury is out on the meme coins
The last thing worth pointing out from this list are the meme coins: Shiba Inu and Dogecoin.
Shiba Inu has seen a big increase in its median hold period over the past five weeks. When SHIB was mooning in late October, the median hold 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, momentum and swing traders have moved onto greener pastures, it would seem.
But even if that's the case, a one-month median hold period doesn't inspire confidence that hodlers really believe in the long-term project. With a $23 billion market value and no competitive advantages or differentiation, Shiba Inu is a good candidate to undergo a major price reversion after gaining more than 57,000,000% in less than a year.
Comparatively, Dogecoin has seen its median hold time shrink modestly to 42 days from around 50 days a couple weeks ago. Like Shiba Inu, Dogecoin has relied on social media buzz and hype to maintain momentum for its token. But with DOGE losing more than 70% of its value since its May all-time high, maintaining steam has become almost impossible.
Like Shiba Inu, Dogecoin lacks for anything resembling a competitive advantage. Its transaction fees are much higher than most payment coins, and according to online business directory Cryptwerk, it's yet to reach 2,000 merchants willing to accept DOGE eight years after its debut.
The jury remains out on these two meme coins.