The Significance of Bitcoin's Velocity in Indicating Its Future Development
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The Significance of Bitcoin's Velocity in Indicating Its Future Development
Bitcoin aims to be both a store of value (digital gold) and a medium of exchange (peer-to-peer cash), but these two roles are not always aligned.
Navigating Web3 tides with focused insightsBy: Stefania Barbaglio, Coindesk
Translated by: Shaw, Jinse Finance
Summary
Bitcoin's on-chain velocity is at its lowest level in a decade, indicating a shift in its use from currency to long-term asset holding.
Institutional adoption has increased, with significant holdings of bitcoin 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 indicate.
Bitcoin's on-chain transaction velocity—how quickly bitcoin changes hands—is at its lowest level in ten years. To some, this appears alarming: Has Bitcoin lost momentum? Is it still being used?
In fact, declining velocity may be the clearest signal yet that Bitcoin is maturing, not stagnating. Bitcoin is no longer circulating like cash but is increasingly held like gold.
Functional Shift
In traditional economics, velocity refers to how frequently money changes hands—it’s a measure of economic activity. For Bitcoin, it tracks how often bitcoins are transacted on-chain. In Bitcoin’s early days, frequent movement occurred as traders, early adopters, and enthusiasts tested its use cases. During major bull runs in 2013, 2017, and 2021, trading surged, with Bitcoin rapidly moving between wallets and exchanges.
Today, the situation has changed. Over 70% of Bitcoin hasn’t moved in more than a year. Transactional activity has declined. At first glance, this might suggest reduced usage. But in reality, it reflects the opposite: strong conviction. Bitcoin is increasingly seen as a long-term asset, not just short-term money. This shift is largely driven by institutional adoption.
Institutional Adoption Locks Up Supply
Since the launch of U.S. spot Bitcoin ETFs in 2024, institutional holdings have surged. By mid-2025, spot ETFs held over 1.298 million bitcoins—about 6.2% of total circulating supply. When including corporate treasuries, private firms, and investment funds, total institutional holdings approach 2.55 million bitcoins, roughly 12.8% of all circulating Bitcoin. These assets mostly remain untouched, stored in cold wallets as part of long-term strategies. Companies like Strategy and Tesla aren't spending their Bitcoin; they're holding it as strategic reserves.
This is positive for scarcity and price, but it reduces velocity: fewer coins circulate, and fewer on-chain transactions occur.
Off-Chain Activity Rises—and Is Harder to See
It’s important to note that on-chain velocity doesn’t 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 beyond the base layer, outside traditional measurement tools.
Take the Lightning Network, Bitcoin’s Layer-2 scaling solution, which enables fast, low-cost payments entirely off the main chain. From streaming micropayments to cross-border remittances, Lightning puts Bitcoin into daily use—but these transactions don’t show up in velocity metrics. By mid-2025, the public capacity of the Lightning Network exceeded 5,000 bitcoins, nearly a 400% increase since 2020. Growth in private channels and institutional experimentation suggests the true figure is much higher.
Likewise, Wrapped Bitcoin (WBTC) allows Bitcoin to move across Ethereum and other blockchains, powering decentralized finance (DeFi) protocols and tokenized financial instruments. In the first half of 2025 alone, WBTC supply grew by 34%, clearly showing Bitcoin is being used—not sitting idle.
Then there’s custody: institutional wallets, ETF cold storage, and multi-signature (multisig) financial tools allow companies to securely hold Bitcoin without transferring it. These holdings carry significant economic weight but contribute nothing to on-chain velocity.
In short, Bitcoin may be far more active than it appears—its activity simply occurs beyond traditional velocity measures. Its utility is shifting to new layers and platforms—payment channels, smart contract systems, yield strategies—that aren’t captured by conventional 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 reduced usage. It may just mean we’re looking in the wrong place.
The Trade-Off Behind Low Velocity
While slow velocity reflects strong investor confidence and long-term holding, it also brings challenges. Reduced on-chain transactions mean lower fees for miners—a growing concern after the 2024 block reward halving. Bitcoin’s long-term security model depends on a healthy fee market, which in turn requires sustained economic activity.
There’s also the perception issue. A network where few coins move may start to resemble a static vault rather than an active market. This may reinforce Bitcoin’s “digital gold” narrative but weaken its vision as a spendable currency.
This is the core design tension: Bitcoin aims to be both a store of value (“digital gold”) and a medium of exchange (“peer-to-peer electronic cash”). But these roles aren’t always aligned. Velocity is a metric of this push-and-pull—the ongoing struggle between preservation and utility. How Bitcoin navigates this will shape not only its usage patterns but also its role in the broader financial system.
Signs of Maturity
In the end, Bitcoin’s declining velocity doesn’t mean it’s being used less. It means how people use Bitcoin is changing. As Bitcoin’s value rises, people prefer saving it over spending it. As adoption grows, infrastructure shifts off-chain. And as institutions join, their strategies focus on preservation over circulation. The Bitcoin network is evolving. Velocity hasn’t disappeared—it’s just become quieter, reshaped by changing user demographics and new layers of economic activity.
If velocity rises again, it could signal a resurgence in transactional use—more spending, faster capital flows, greater retail participation. If velocity remains low, it confirms Bitcoin’s entrenched role as macro collateral. Either way, velocity offers a window into Bitcoin’s future—not as currency to be spent, but as an asset to be built upon.
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