Bitcoin Velocity: A Key Indicator of Crypto's Future
Decoding Bitcoin's Velocity: What Does It Mean for the Future?
Bitcoin’s on-chain velocity—the frequency with which coins move—has hit decade lows. Some interpret this as a worrying sign: Is Bitcoin running out of steam? Is its utility declining?
However, this decrease in velocity may signal Bitcoin's evolution, not stagnation. Instead of being used primarily as a transactional currency, Bitcoin is increasingly being seen and held as a store of value, akin to gold.
Understanding the Shift in Bitcoin's Function
In traditional economics, velocity measures how often money changes hands, reflecting economic activity. For Bitcoin, it tracks how frequently BTC is transacted on-chain. Early on, Bitcoin saw frequent movement as users tested its capabilities. Major bull runs in 2013, 2017, and 2021 saw spikes in transaction activity.
Today, the landscape has shifted. Over 70% of BTC hasn't moved in over a year. While this might appear to indicate declining use, it instead reflects growing conviction. Bitcoin is increasingly viewed as a long-term asset, driven significantly by institutional adoption.
The Impact of Institutional Adoption
Since the introduction of US spot Bitcoin ETFs in 2024, institutional holdings have surged. By mid-2025, spot ETFs held over 1.298 million BTC, about 6.2% of the total circulating supply. Including corporate treasuries, private companies, and investment funds, total institutional holdings approach 2.55 million BTC, or roughly 12.8% of all Bitcoin in circulation. These assets are largely static, stored in cold wallets as part of long-term holding strategies. Companies like Strategy and Tesla are holding Bitcoin as a strategic reserve, not spending it.
This trend is bullish for scarcity and price, but it naturally lowers on-chain velocity.
The Rise of Off-Chain Usage
It's important to consider that on-chain velocity doesn’t capture the complete picture of Bitcoin’s economic activity.
Bitcoin's real economic activity is increasingly occurring off the base layer.
Consider the Lightning Network, Bitcoin’s Layer-2 solution, which enables fast and low-cost payments. Lightning facilitates everyday transactions but its activity isn't reflected in on-chain velocity metrics. By mid-2025, public Lightning capacity surpassed 5,000 BTC, reflecting approximately a 400% increase since 2020. Private channel growth and institutional experimentation suggest the actual figure is even higher.
Similarly, Wrapped Bitcoin (WBTC) enables BTC to circulate across Ethereum and other chains, supporting DeFi and tokenized finance. WBTC supply grew by 34% in the first half of 2025 alone.
Institutional wallets, ETF cold storage, and multisig treasury tools also allow firms to securely hold BTC without moving it, impacting velocity.
In summary, Bitcoin is likely more active than it appears, with utility expanding across new layers and platforms that traditional velocity metrics don’t capture. As Bitcoin evolves, we may need new ways to measure its momentum.
The Trade-Off Behind Low Velocity
While low velocity indicates long-term holding and conviction, it presents challenges. Fewer on-chain transactions mean reduced fees for miners, a growing concern post the 2024 halving. Bitcoin’s long-term security relies on a healthy fee market driven by consistent economic activity.
Furthermore, a network where coins rarely move risks being perceived as a static vault rather than a dynamic marketplace, strengthening the “digital gold” narrative but potentially weakening its usability as a currency.
Bitcoin aims to function both as a store of value and a medium of exchange, roles that aren't always aligned. How Bitcoin navigates this tension will shape its role in the financial system.
A Sign of Maturity for Bitcoin
In conclusion, falling velocity signifies a change in how Bitcoin is used. As Bitcoin gains value, holding becomes more attractive than spending. Infrastructure shifts off-chain, and institutions prioritize preservation. Bitcoin is evolving, reshaping its economic activity.
A rise in velocity could indicate renewed transactional use, while sustained low velocity may cement Bitcoin's role as macro collateral. Regardless, velocity offers insights into Bitcoin's future, highlighting its development from a simple coin to spend to an asset to build on. At Codeum, we understand that the evolution of Bitcoin and blockchain technology requires robust security and expert development. That's why we offer comprehensive smart contract audits, KYC verification, and custom DApp development services to ensure your projects are secure and innovative. Learn more about our services and how we can help you navigate the future of blockchain.