The significance of Bitcoin's circulation speed to its future development

Author: Stefania Barbaglio, Coindesk  

Translated by: Shaw, Jinse Finance  

## Summary  

Bitcoin's on-chain circulation speed is at its lowest level in a decade, indicating a shift in its use from a currency to a long-term asset held for storage.  

Institutional adoption has increased, with significant growth in Bitcoin holdings in exchange-traded funds (ETFs) and corporate treasuries, reducing on-chain transactions.  

Off-chain activities, including the use of the Lightning Network and Wrapped Bitcoin, suggest that Bitcoin's economic activity is more vibrant than on-chain metrics imply.  

Bitcoin's on-chain transaction speed—i.e., the velocity of Bitcoin—is at a 10-year low. To some, this is a red flag: Has Bitcoin lost momentum? Is it still being used?  

In reality, the decline in velocity may be the clearest sign yet that Bitcoin is maturing, not stagnating. Rather than circulating like cash, Bitcoin is increasingly being held like gold.  

### A Shift in Function  

In traditional economics, velocity refers to how often money changes hands; it is a measure of economic activity. For Bitcoin, it tracks how frequently coins are transacted on-chain. In Bitcoin’s early days, velocity was high as traders, early adopters, and enthusiasts tested its use cases. During major bull markets in 2013, 2017, and 2021, transaction activity surged, with Bitcoin flowing rapidly between wallets and exchanges.  

Today, the landscape has changed. Over 70% of Bitcoin has not moved in more than a year. Transaction activity has slowed. At first glance, this might suggest declining usage. But it reflects something else: unwavering confidence. Bitcoin is being treated as a long-term asset, not just a short-term currency. This shift is largely driven by institutions.  

### Institutional Adoption Locks Up Supply  

Since the launch of U.S. spot Bitcoin ETFs in 2024, institutional holdings have risen sharply. As of mid-2025, spot ETFs hold over 1.298 million Bitcoin, accounting for approximately 6.2% of the total circulating supply. When including holdings from corporate treasuries, private companies, and investment funds, total institutional holdings approach 2.55 million Bitcoin—about 12.8% of all circulating Bitcoin. Most of these assets remain untouched, stored in cold wallets as part of long-term strategies. Companies like Strategy and Tesla have not spent their Bitcoin, instead holding it as a strategic reserve.  

This is positive for scarcity and price but reduces velocity: fewer coins are in circulation, and fewer transactions occur on-chain.  

### Off-Chain Usage Is Rising—and Harder to Track  

It’s important to note that on-chain velocity does not capture all of Bitcoin’s economic activity.  

On-chain velocity tells only part of the story. Today, Bitcoin’s real economic activity is increasingly happening outside the base layer and beyond traditional metrics.  

Take the Lightning Network, a second-layer scaling solution for Bitcoin that bypasses the main chain entirely to enable fast, low-cost payments. From microtransactions for streaming to cross-border remittances, the Lightning Network allows Bitcoin to be used in daily scenarios—yet its transactions do not appear in velocity metrics. As of mid-2025, the Lightning Network’s public capacity exceeded 5,000 Bitcoin, up nearly 400% since 2020. Growth in private channels and institutional experimentation suggests the actual figure is much higher.  

Similarly, Wrapped Bitcoin (WBTC) enables Bitcoin to circulate on Ethereum and other blockchains, powering decentralized finance (DeFi) protocols and tokenized finance. WBTC supply grew 34% in the first half of 2025 alone, a clear sign that Bitcoin is being used, not idled.  

Then there’s the issue of custody: Institutional wallets, ETF cold storage, and multisignature financial tools allow businesses to hold Bitcoin securely but often without moving the coins. These holdings may have significant economic value but contribute nothing to on-chain velocity.  

In short, Bitcoin may be more active than it appears—its activity just occurs outside traditional velocity metrics. Its utility is shifting to new layers and platforms: payment channels, smart contract systems, yield strategies—none of which are captured in traditional velocity models. As Bitcoin evolves into a multi-layered monetary system, new methods may be needed to measure its momentum. A decline in on-chain velocity does not necessarily mean less usage. In fact, it may simply mean we’re looking in the wrong place.  

### Trade-Offs Behind Low Velocity  

While slow velocity signals strong investor confidence and long-term holding, it also poses challenges. Fewer on-chain transactions mean lower fees for miners—a growing concern after the 2024 block reward halving. Bitcoin’s long-term security model relies on a healthy fee market, which in turn requires sustained economic activity.  

Perception is another issue. In a network where few coins circulate, it may start to look more like a static vault than an active market. This could strengthen the argument for Bitcoin as “digital gold” but weaken its vision as a circulating currency.  

This is the core design paradox: Bitcoin aims to be both a store of value (digital gold) and a medium of exchange (peer-to-peer cash). These roles are not always aligned. Velocity measures this push-and-pull—the ongoing tension between preservation and utility—and how Bitcoin navigates it will shape not only its usage patterns but its role in the broader financial system.  

### A Sign of Maturity  

Ultimately, Bitcoin’s declining velocity does not mean it is being used less frequently. It indicates a change in *how* people use it. As Bitcoin’s value rises, people are more likely to save it than spend it. As adoption spreads, infrastructure shifts off-chain. And as institutions join, their strategies prioritize preservation over circulation. The Bitcoin network is evolving. Velocity is not disappearing—it is simply becoming less active, reshaped by a changing user base and new layers of economic activity.  

If velocity rises again, it could signal a resurgence in transactional use: more spending, faster capital flows, and greater retail participation. If it remains low, it may indicate Bitcoin’s role as macro collateral is entrenched. Either way, velocity offers a window into Bitcoin’s future—not as a currency to spend, but as an asset to build upon.  

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