Written by: Stefania Barbaglio, Coindesk
Translated by: Shaw Golden Finance
Summary
The on-chain circulation velocity of Bitcoin is at its lowest level in a decade, indicating that its use has shifted from currency to holding long-term assets.
Institutional adoption has increased, with significant holdings of Bitcoin in exchange-traded funds (ETFs) and corporate treasuries, leading to a reduction in on-chain transactions.
Off-chain activities, including the use of the Lightning Network and Wrapped Bitcoin, indicate that Bitcoin's economic activity is more active than on-chain metrics suggest.
The on-chain transaction speed of Bitcoin (i.e., Bitcoin's circulation velocity) is at its lowest level in a decade. To some, this is a dangerous signal: has Bitcoin lost its momentum? Is it still being used?
In fact, the decline in circulation velocity may be the clearest signal to date that Bitcoin is maturing rather than stagnating. Bitcoin is no longer circulating like cash but is increasingly being held like gold.
Functional Shift
In traditional economics, the velocity of circulation refers to the frequency with which money changes hands; it is an indicator of economic activity. For Bitcoin, it tracks the frequency of on-chain Bitcoin transactions. During the early stages of Bitcoin's development, the circulation frequency was high as traders, early adopters, and enthusiasts tested its use cases. During major bull markets such as in 2013, 2017, and 2021, trading activity surged, and Bitcoin flowed rapidly between wallets and exchanges.
Today, the situation has changed. More than 70% of Bitcoin has not moved for over a year. Trading activity has decreased. At first glance, this seems to indicate a decrease in usage. But in reality, it reflects another situation: steadfast confidence. Bitcoin is being viewed as a long-term asset rather than just a short-term currency. This shift is largely driven by institutions.
Institutional adoption leads to supply lockup
Since the launch of the U.S. spot Bitcoin ETF in 2024, institutional holdings have surged. By mid-2025, spot ETFs held over 1.298 million bitcoins, accounting for about 6.2% of the total circulating supply. Including corporate treasuries, private companies, and investment funds, total institutional holdings are close to 2.55 million bitcoins, approximately 12.8% of all circulating bitcoins. Most of these assets remain unchanged, stored in cold wallets as part of a long-term strategy. Companies like Strategy and Tesla have not tapped into their Bitcoin but hold it as a strategic reserve.
This is good for scarcity and price, but it also reduces circulation velocity: the amount of coins in circulation decreases, and on-chain transactions also decline.
Off-chain usage is rising and harder to detect
It is important to note that on-chain circulation velocity cannot encompass all economic activities of Bitcoin.
On-chain circulation velocity tells only part of the story. Today, the true economic activity of Bitcoin increasingly occurs beyond the foundational layer, and is beyond the scope of traditional measurement methods.
Take the Lightning Network as an example, it is Bitcoin's second-layer scaling solution, enabling fast, low-cost payments that completely bypass the main chain. From streaming micropayments to cross-border remittances, the Lightning Network allows Bitcoin to be used in everyday scenarios, but its transactions are not reflected in circulation velocity metrics. As of mid-2025, the public capacity of the Lightning Network has exceeded 5,000 bitcoins, growing nearly 400% since 2020. The growth of private channels and institutional experimentation indicates that the actual numbers are much higher.
Similarly, Wrapped Bitcoin (WBTC) allows Bitcoin to circulate on Ethereum and other chains, powering decentralized finance (DeFi) protocols and tokenized finance. In just the first half of 2025, the supply of WBTC grew by 34%, clearly indicating that Bitcoin is being used, not idled.
Then there is the custody issue: institutional wallets, exchange-traded fund (ETF) cold storage, and multisig financial tools allow enterprises to safely hold Bitcoin, but these coins typically do not move. These coins may have significant economic implications but contribute nothing to on-chain transaction speed.
In short, Bitcoin's level of activity may be higher than it appears on the surface; it is just that this activity occurs outside traditional velocity metrics. Its utility is shifting to new layers and platforms—payment channels, smart contract systems, yield strategies—that are not reflected in traditional circulation velocity models. As Bitcoin evolves into a multi-layer currency system, we may need new methods to measure its growth momentum. The decline in on-chain circulation velocity does not necessarily mean that usage is decreasing. In fact, it may simply mean we are looking in the wrong direction.
Trade-offs Behind Low Transaction Speed
While slow transaction speeds indicate strong investor confidence and long-term holding, they also present challenges. A decrease in on-chain transactions means reduced fees for miners: this has become an increasingly pressing issue 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.
Another issue is people's perception. In a network where few coins circulate, it may start to look more like a static vault rather than an active market. This may reinforce the argument that Bitcoin is 'digital gold,' but it undermines its vision as a circulating currency.
This is the core design contradiction: Bitcoin is intended to serve simultaneously as a means of storing value (digital gold) and as a medium of exchange (peer-to-peer cash). However, these two roles do not always align. Circulation velocity is an indicator of this push-pull relationship, the ongoing struggle between value preservation and utility, and how Bitcoin responds to this situation will not only affect its usage patterns but also determine its role in the broader financial system.
Signs of Maturity
Ultimately, the decline in Bitcoin's circulation velocity does not imply a decrease in its usage frequency. It indicates that the way people use Bitcoin has changed. As Bitcoin's value has increased, people are more inclined to save it rather than spend it. With its widespread adoption, infrastructure has gradually shifted off-chain. And with the entry of institutions, their strategies are more focused on value preservation rather than circulation. The Bitcoin network is evolving. The circulation velocity has not disappeared; it has simply become less active, reshaped by a changing user base and new layers of economic activity.
If transaction speed rises again, it may signal a resurgence in transactional use; increased consumption, accelerated capital flow, and heightened retail participation. If transaction speed remains sluggish, it indicates that Bitcoin's role as macro collateral has become entrenched. In either case, transaction speed provides a window into Bitcoin's future. It is not serving as a currency for consumption but rather as a buildable asset.
