Bitcoin on-chain transaction speed hits a ten-year low: a sign of maturity or a warning signal?

The on-chain circulation speed of Bitcoin is at its lowest level in a decade, a phenomenon that has sparked discussions about its use and development direction. Some believe this may be a warning sign of Bitcoin losing momentum. However, a deeper analysis shows that this trend actually reflects Bitcoin's maturation, with its function shifting from a circulating currency to the holding of a long-term asset.

Function Transformation

The on-chain circulation speed of Bitcoin has decreased, indicating a lower transaction frequency. This stands in stark contrast to the early stages of Bitcoin when the circulation speed was higher due to traders and early adopters frequently testing its use cases. Today, over 70% of Bitcoin has remained stationary for more than a year, reflecting an increased long-term confidence from investors who view it as a store of value.

Institutions Adopt to Promote Supply Lockup

The large-scale entry of institutional investors is one of the main reasons for the decline in the circulation speed of Bitcoin. The launch of the spot Bitcoin ETF has attracted a significant amount of institutional capital. As of recently, the amount of Bitcoin held by the spot ETF accounts for 6.2% of the total circulating supply. If we include the holdings of corporate treasuries, private companies, and investment funds, the total institutional holdings approach 12.8% of the total circulating Bitcoin. These institutions typically use Bitcoin as a long-term strategic reserve, storing it in cold wallets, which reduces active trading.

Off-chain activities increase

It is worth noting that the on-chain circulation speed does not fully reflect the economic activities of Bitcoin. With technological advancements, an increasing number of Bitcoin transactions occur outside the base layer. For example, the Lightning Network, as a second-layer scaling solution, enables fast and low-cost payments, but these transactions are not included in the on-chain circulation speed. Similarly, Wrapped Bitcoin (WBTC) allows Bitcoin to circulate on other blockchains, supporting DeFi protocols, and this part of the activity is also not reflected in traditional metrics.

The Impact of Low Transaction Speed

Although the low transaction speed indicates an increase in investor confidence, it also brings some challenges. Firstly, the decrease in on-chain transactions leads to a reduction in the fees earned by miners, which may affect the long-term security of the network. Secondly, the low circulation speed may strengthen Bitcoin's positioning as "digital gold," but at the same time, it may weaken its vision as a circulating currency.

Conclusion

The decline in the on-chain circulation speed of Bitcoin does not mean a reduction in its usage, but rather reflects a shift in how it is used. With the increase in Bitcoin's value and the entry of institutional investors, people are more inclined to hold it as a long-term asset. At the same time, the emergence of new technological layers and platforms has led to economic activities increasingly occurring off-chain. This shift signifies that the Bitcoin network is maturing, evolving from a purely transactional medium into a multifunctional financial asset.

In the future, whether the circulation speed rises or continues to remain low, it will provide us with an important window to observe the development direction of Bitcoin. Bitcoin is evolving into a buildable asset, and its role and function will continue to adapt to the ever-changing financial environment.