Bitcoin aims to serve as both a store of value (digital gold) and a medium of exchange (peer-to-peer cash), but these two roles do not always align.

Written by: Stefania Barbaglio, 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.

Institutional adoption has increased, with significant 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, suggest that Bitcoin's economic activity is more vibrant than on-chain metrics indicate.

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 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; it is increasingly being held like gold.

Shift in Function

In traditional economics, circulation speed refers to the frequency with which money changes hands; it is an indicator of economic activity. For Bitcoin, it tracks the frequency of Bitcoin transactions on-chain. In the early stages of Bitcoin's development, the circulation frequency was high as traders, early adopters, and enthusiasts tested its use cases. 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 declined. At first glance, this seems to indicate a decrease in usage. But in reality, it reflects a different scenario: steadfast confidence. Bitcoin is being viewed as a long-term asset rather than just a short-term currency. This shift is largely driven by institutions.

Institutional Adoption Leads to Supply Lockup

Since the launch of the U.S. spot Bitcoin ETF in 2024, institutional holdings have surged. By mid-2025, spot ETFs held over 1.298 million Bitcoins, accounting for about 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 Bitcoins, roughly 12.8% of all circulating Bitcoins. Most of these assets remain unchanged, stored in cold wallets as part of long-term strategies. Companies like Strategy and Tesla have not utilized their Bitcoin but hold it as a strategic reserve.

This is positive for scarcity and price but simultaneously reduces circulation speed: the amount of coins in circulation decreases, leading to fewer on-chain transactions.

Off-Chain Usage is Rising and Harder to Detect

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

On-chain circulation speed only tells part of the story. Today, the true economic activity of Bitcoin increasingly occurs off the base layer and falls outside traditional measurement methods.

Take the Lightning Network, for example, which is Bitcoin's second-layer scaling solution that can completely bypass the main chain for fast, low-cost payments. From streaming micropayments to cross-border remittances, the Lightning Network enables Bitcoin to be used in everyday scenarios, but its transactions are not reflected in the circulation speed metrics. By mid-2025, the public capacity of the Lightning Network had exceeded 5,000 Bitcoins, growing nearly 400% since 2020. The growth of private channels and institutional experimentation suggests that the actual numbers are much higher.

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

Then there are custody issues: institutional wallets, ETF cold storage, and multisig financial tools allow companies to hold Bitcoin securely but typically do not transfer these coins. These coins may have significant economic implications but contribute nothing to on-chain transaction speed.

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

Trade-offs Behind Low Transaction Speed

While slow transaction speed indicates strong investor confidence and long-term holding, it also presents challenges. The decrease in on-chain transactions means lower fees for miners: this has become an increasingly serious issue following the 2024 block reward halving. Bitcoin's long-term security model relies on a healthy fee market, which in turn requires sustained economic activity.

Another issue is perception. In a network where few coins circulate, it may begin to appear more like a static vault rather than an active market. This may reinforce the argument that Bitcoin is "digital gold," but it undermines its vision as a circulating currency.

This is the core design contradiction: Bitcoin is intended to serve as both a store of value (digital gold) and a medium of exchange (peer-to-peer cash). But these two roles do not always align. Circulation speed is a metric for measuring this push-pull relationship, the ongoing struggle between preservation of value and practicality, and how Bitcoin navigates this situation will not only affect its usage patterns but also determine its role in the broader financial system.

Signs of Maturity

Ultimately, the decline in Bitcoin's circulation speed does not mean its usage frequency is decreasing. It indicates that the way people use Bitcoin has changed. As Bitcoin's value increases, people are more inclined to save it rather than spend it. With its widespread adoption, infrastructure is gradually shifting off-chain. As institutions join in, their strategies focus more on value preservation than circulation. The Bitcoin network is evolving. Circulation speed has not disappeared; it has simply become less active, reshaped by a changing user base and new layers of economic activity.

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

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