This question specifically is about Ethereum and other cryptocurrency coins, but should be applicable to any asset as far as I understand.
I was a reading a valuation paper by Grayscale Research and they were talking about how one criticism of Ethereum and coins that exist on the Ethereum network was that it would potentially suffer from an infinite velocity problem where no one actually wanted to hold the coins but just use them as an intermediate ramp between fiat currencies and goods and services/asset purchases.
Similarly, some have argued that Ether suffers from a working capital or infinite velocity problem — as simply a medium of exchange asset, investors may look to minimize their holdings to only what is necessary to pay for a service, i.e., Ether would be treated as working capital. Because investors might look to minimize their working capital, the velocity of Ether would increase and its value according to the equation of exchange, M=PQ/V, would decrease. In other words, constant selling would drive down the price of the Ether.
Their source is taken from this article titled Understanding Token Velocity.
However, I don't fully understand the argument or know if it is valid. It seems to be at least partially wrong to me.
I thought about it and wouldn't people just hold onto Ethereum or other coins they thought were valuable if they knew they were going to need to use them later as long as they suspected the coins would be in more demand, even if there was no use-case for a store of value?
For example, if I owned a restaurant and I created a coin and I mandated all customers pay by using this coin, many customers would indeed just convert fiat into the coin and then just purchase the goods and services. However, I would imagine that many customers would buy more coins than they need if they anticipated demand rising and/or liked to buy at the restaurant anyways?
The author of the article states that
Consumers want to pay for tickets denominated in dollars. They may purchase <token name> tokens as part of the ticket acquisition process, but they won’t hold the tokens for more than a few minutes at a time. There’s simply no incentive to hold them and incur price risk relative to the dollar.
Or is the author of the article right and this is where EIP-1559/token burning and also staking will become relevant? Or they are wrong but EIP-1559/token burning and also staking will just further increase the value proposition of ETH/ETH-based coins to investors?