Author: Stefania Barbaglio, Source: Coindesk, Compiled by Shaw Jinse Finance
Summary
Bitcoin's on-chain velocity is at its lowest level in a decade, suggesting a shift in its use from currency to long-term asset holdings.
Institutional adoption has increased, with Bitcoin holdings in exchange-traded funds (ETFs) and corporate treasuries significantly increasing, reducing on-chain transactions.
Off-chain activity, including the use of the Lightning Network and Wrapped Bitcoin, suggests that Bitcoin's economic activity is more active than on-chain metrics suggest.
Bitcoin's on-chain transaction velocity (i.e., the velocity of Bitcoin in circulation) is at its lowest level in a decade. To some, this raises a red flag: Has Bitcoin lost momentum? Is it still being used? In fact, declining velocity is perhaps the clearest sign yet that Bitcoin is maturing, not stagnating. Instead of circulating like cash, Bitcoin is increasingly being held like gold. A Functional Shift In traditional economics, velocity refers to how frequently money changes hands; it's an indicator of economic activity. For Bitcoin, it tracks how often Bitcoin is traded on-chain. In its early days, Bitcoin's velocity was high as traders, early adopters, and enthusiasts tested its use cases. During major bull runs like those in 2013, 2017, and 2021, trading activity surged, with Bitcoin moving rapidly between wallets and exchanges. Today, the situation has changed. Over 70% of all Bitcoin has remained untouched in over a year. Trading activity has declined. At first glance, this might suggest diminishing usage. But in reality, this reflects something else: unwavering confidence. Bitcoin is being viewed as a long-term asset, not just a short-term currency. This shift is largely driven by institutions. Institutional Adoption Leads to Supply Lockup Since the launch of US spot Bitcoin ETFs in 2024, institutional holdings have surged. By mid-2025, spot ETFs held over 1.298 million Bitcoins, representing approximately 6.2% of the total circulating supply. Including holdings in corporate treasuries, private companies, and investment funds, total institutional holdings approach 2.55 million Bitcoins, or approximately 12.8% of all circulating Bitcoin. These assets remain largely untouched, stored in cold wallets as part of long-term strategies. Companies like Strategy and Tesla haven't used their Bitcoin, holding it as strategic reserves. This is good for scarcity and price, but it also reduces velocity: fewer coins are in circulation, and fewer transactions are occurring on-chain. Off-chain usage is increasing and becoming more subtle. It's important to note that on-chain velocity doesn't capture all of Bitcoin's economic activity. On-chain velocity tells only a partial story. Today, Bitcoin's true economic activity increasingly occurs outside the base layer and beyond the scope of traditional metrics. Take the Lightning Network, for example, Bitcoin's second-layer scaling solution that completely bypasses the main chain, enabling fast and low-cost payments. From streaming micropayments to cross-border remittances, the Lightning Network enables Bitcoin's use in everyday scenarios, yet its transactions aren't reflected in velocity metrics. By mid-2025, the Lightning Network's public capacity exceeded 5,000 Bitcoins, a nearly 400% increase since 2020. The growth of private channels and institutional experimentation suggests the actual number is much higher. Similarly, Wrapped Bitcoin (WBTC) enables Bitcoin to circulate on Ethereum and other chains, powering decentralized finance (DeFi) protocols and tokenized finance. WBTC's supply grew by 34% in the first half of 2025 alone, clearly demonstrating that Bitcoin is being used, not sitting idle. Then there's the issue of custody: Institutional wallets, exchange-traded fund (ETF) cold storage, and multisig financial instruments allow businesses to securely hold Bitcoin, but they typically don't move it. These coins may be economically important but contribute nothing to on-chain transaction speed. In short, Bitcoin may be more active than it appears, but this activity is occurring outside of traditional velocity metrics. Its utility is shifting to new layers and platforms—payment rails, smart contract systems, and yield strategies—that are not captured in traditional velocity models. As Bitcoin evolves into a multi-layered monetary system, we may need new ways to measure its momentum. Declining on-chain velocity doesn't necessarily mean usage is declining. In fact, it may simply mean we're looking in the wrong direction. The Tradeoffs Behind Low Transaction Velocity While slow transaction speeds indicate investor confidence and long-term holding, they also present challenges. Fewer on-chain transactions means fewer fees for miners: a growing concern following the 2024 block reward halving. Bitcoin's long-term security model relies on a healthy fee market, which in turn requires sustained economic activity. There's also the issue of perception. In a network with few coins in circulation, it may begin to look more like a static treasury than an active market. This may strengthen Bitcoin's argument for being "digital gold," but it undermines its vision as a viable currency. This is the core design contradiction: Bitcoin is intended to be both a store of value (digital gold) and a medium of exchange (peer-to-peer cash). But these two roles don't always mesh. Velocity is a measure of this push and pull. This ongoing struggle between value preservation and utility, and how Bitcoin navigates it, will influence not only its usage patterns but also its role in the broader financial system. A Sign of Maturity: Ultimately, a decline in Bitcoin's velocity doesn't mean it's being used less frequently. It indicates a shift in how people use Bitcoin. As Bitcoin's value increases, people tend to save it rather than spend it. With widespread adoption, infrastructure gradually shifts off-chain. And as institutions enter the market, their strategies focus more on preserving value rather than circulating it. The Bitcoin network is evolving. Velocity hasn't disappeared, it's simply become less active, reshaped by a shifting user base and new layers of economic activity.
If transaction velocity rises again, it could signal a resurgence of transactional use; increased consumption, faster money flows, and greater retail participation. If transaction velocity remains subdued, it could signal the entrenchment of Bitcoin's role as macro collateral. In either case, transaction velocity offers a window into Bitcoin's future: not as a currency to be spent, but as an asset to be constructed.
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