The circulation speed of Bitcoin indicates its future development.

Author: Stefania Barbaglio, Source: Coindesk, Translated by: Shaw Golden Finance

Summary

• The on-chain circulation speed of Bitcoin is at its lowest level in a decade, indicating that its use has shifted from currency to the holding of long-term assets.
• The adoption rate by institutions has increased, with a significant rise in the holdings of Bitcoin in exchange-traded funds (ETFs) and corporate treasuries, thereby reducing 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 what on-chain metrics suggest.

The on-chain transaction speed of Bitcoin (i.e., the circulation speed of Bitcoin) is at its lowest level in a decade. For some, this is a warning sign: Has Bitcoin lost its momentum? Is it still being used?

In fact, the decline in circulation speed 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.

Function Transformation

In traditional economics, the velocity of circulation refers to the frequency at which money changes hands; it is an indicator of economic activity. For Bitcoin, it tracks the frequency of Bitcoin transactions on the chain. In the early stages of Bitcoin's development, due to traders, early adopters, and enthusiasts testing its use cases, the circulation frequency of Bitcoin was high. During major bull markets in 2013, 2017, and 2021, trading activity surged, and Bitcoin flowed rapidly between wallets and exchanges.

Today, the situation has changed. Over 70% of Bitcoin has not moved for more than a year. Trading activity has decreased. At first glance, this seems to indicate a reduction in usage. But in reality, it reflects a different situation: steadfast confidence. Bitcoin is being viewed as a long-term asset rather than just a short-term currency. This shift has largely been driven by institutions.

Institutional adoption leads to supply lock-up

Since the launch of the US spot Bitcoin ETF in 2024, institutional holdings have significantly increased. By mid-2025, the spot ETF holds over 1.298 million Bitcoins, accounting for approximately 6.2% of the total circulating supply. When including holdings from corporate treasuries, private companies, and investment funds, the total institutional holdings approach 2.55 million Bitcoins, which is about 12.8% of all circulating Bitcoins. Most of these assets remain unchanged and are stored in cold wallets as part of a long-term strategy. Companies like Strategy and Tesla have not utilized their Bitcoins, but instead hold them as strategic reserves.

This is favorable for scarcity and price, but it also reduces the circulation speed: the amount of coins in circulation decreases, and the number of transactions occurring on the chain also decreases.

Off-chain usage is on the rise and harder to detect

It is important to note that the on-chain circulation speed does not encompass all economic activities of Bitcoin.

On-chain circulation speed only reflects part of the situation. Nowadays, the real economic activity of Bitcoin is increasingly taking place outside the base layer and beyond the scope of traditional measurement methods.

Taking the Lightning Network as an example, it is the second-layer scaling solution for Bitcoin that can completely bypass the main chain to achieve fast and low-cost payments. 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 the circulation speed 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 experiments indicate that the actual numbers are much higher.

Similarly, Wrapped Bitcoin (WBTC) enables 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 increased by 34%, clearly indicating that Bitcoin is being used rather than sitting idle.

Then there is the issue of custody: institutional wallets, exchange-traded funds (ETFs) cold storage, and multisig financial tools allow enterprises to securely hold Bitcoin, but they typically do not transfer these coins. These coins may have significant economic implications, but they do not contribute to on-chain transaction speed.

In short, the level of activity of Bitcoin may be higher than it appears on the surface; it is just that this activity occurs outside of traditional velocity metrics. Its utility is shifting to new levels and platforms—payment channels, smart contract systems, yield strategies—that are not reflected in traditional velocity models. As Bitcoin evolves into a multi-layered currency system, we may need new methods to measure its momentum. The decline in on-chain velocity does not necessarily mean that usage is decreasing. In fact, it may simply mean that we are looking in the wrong direction.

The Trade-offs Behind Low Transaction Speed

Although slow transaction speeds indicate that investors have strong confidence and are holding long-term, it also brings challenges. The decrease in on-chain transactions means that miners receive less transaction fees: this has become an increasingly serious issue after the block reward halving in 2024. The long-term security model of Bitcoin relies on a healthy fee market, which in turn requires continuous economic activity.

Another issue is people's perception. In a network where there is little currency circulation, it may start to look more like a static vault rather than an active market. This may strengthen the argument that Bitcoin is "digital gold," but it undermines its vision as a circulating currency.

This is the core design contradiction: Bitcoin aims to be both a store of value (digital gold) and a medium of exchange (peer-to-peer cash) at the same time. However, these two roles are not always in harmony. The velocity of circulation is an indicator of this push-pull relationship, the ongoing struggle between value preservation and utility, and how Bitcoin navigates this situation will not only affect its usage patterns but also determine its role in the broader financial system.

Sign of Maturity

Ultimately, the decrease in the velocity of Bitcoin does not mean that its usage frequency has declined. This indicates that the way people use Bitcoin has changed. With the increase in Bitcoin's value, people are more inclined to save it rather than spend it. As it becomes widely adopted, the infrastructure is gradually shifting to off-chain. With the entry of institutions, their strategies are more focused on value preservation rather than circulation. The Bitcoin network is evolving. The velocity has not disappeared; it has simply become less active, reshaped by the changing user demographics and new layers of economic activity.

If the transaction speed rises again, it may signify a resurgence in transactional use; increased consumption, accelerated capital flow, and higher retail participation. If the transaction speed remains sluggish, it indicates that Bitcoin's role as macro collateral has become entrenched. In either case, transaction speed provides a window for observing Bitcoin's future. It is not seen as a currency for consumption, but rather as a buildable asset.