Bitcoin’s On-Chain Velocity Hits Decade Lows Amid Institutional Adoption
Bitcoin's on-chain velocity is at its lowest in a decade, raising questions about its usage and momentum. However, this decline may indicate Bitcoin's maturation rather than stagnation, as it shifts from a transactional currency to a long-term asset akin to gold.
A Shift in Function
- On-chain velocity measures the frequency of BTC transactions.
- More than 70% of BTC has not moved in over a year, signaling a decrease in transactional activity.
- This trend reflects increased conviction among holders, particularly institutions.
Institutional Adoption Locks Up Supply
- US spot Bitcoin ETFs launched in 2024 have significantly increased institutional holdings.
- As of mid-2025, spot ETFs hold over 1.298 million BTC, or 6.2% of total supply.
- Total institutional holdings approach 2.55 million BTC, about 12.8% of circulation.
- These assets are mostly stored in cold wallets, reducing on-chain transactions.
Off-Chain Usage Is Rising and Harder to See
- On-chain metrics do not fully capture Bitcoin's economic activity.
- The Lightning Network enables fast payments but its transactions don’t affect velocity metrics; capacity exceeded 5,000 BTC by mid-2025.
- Wrapped Bitcoin (WBTC) supply grew by 34% in H1 2025, indicating active deployment across DeFi protocols.
- Institutional custody solutions keep BTC secure without moving it, contributing to low on-chain velocity.
The Trade-Off Behind Low Velocity
- Low transaction velocity shows strong conviction but reduces miner fees, a concern post-2024 halving.
- A static network perception may bolster Bitcoin's "digital gold" narrative while undermining its utility as money.
A Sign of Maturity
- Falling velocity indicates a shift in usage patterns rather than decreased activity.
- As Bitcoin gains value, it’s increasingly viewed as a store of value rather than a medium of exchange.
- Future changes in velocity could reveal trends in retail involvement or solidify Bitcoin's role as macro collateral.