What Bitcoin's Velocity Says About Its Future
Main Idea
Bitcoin's declining on-chain velocity does not indicate reduced usage but rather a shift in its function from a transactional currency to a store of value, driven by institutional adoption and off-chain activity.
Key Points
1. Bitcoin's on-chain velocity is at decade lows, with over 70% of BTC not moving in over a year, reflecting a shift from transactional use to being held like gold.
2. Institutional holdings, including spot ETFs and corporate treasuries, now account for approximately 12.8% of Bitcoin's circulating supply, reducing on-chain transactions but increasing scarcity.
3. Off-chain usage, such as through the Lightning Network and tokenized finance (e.g., WBTC), is growing, with Lightning Network capacity increasing by nearly 400% since 2020.
4. Low velocity reflects long-term holding conviction but raises concerns about Bitcoin's security model post-2024 halving, which reduced block rewards.
5. Bitcoin's evolving use cases suggest it is becoming more of an asset to build on rather than a currency to spend, with velocity serving as a measure of this transition.
Description
Bitcoin’s on-chain velocity—how often coins move—is at decade lows. To some, that’s a red flag: has Bitcoin lost momentum? Is it still being used? In fact, falling velocity may be the clearest signal yet that Bitcoin is maturing, not stagnating. Instead of circulating like cash, Bitcoin is increasingly being held like gold. A Shift in Function In traditional economics, velocity refers to how often money changes hands; it’s a proxy for economic activity. For Bitcoin, it tracks how frequently BTC ...
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