Bitcoin Usage Drops: Circulation Hits 13-Year Low
Bitcoin’s circulation has dropped to its lowest level in 13 years, suggesting it's now seen more as "Digital Gold" than electronic cash.
Recent on-chain data shows that Bitcoin is no longer being used as electronic cash by its users, with circulation hitting a significant low.
CryptoQuant founder and CEO Ki Young Ju highlighted in a post on X that Bitcoin's circulation has significantly decreased. The key indicator here is "Velocity," which measures how quickly Bitcoin’s tokens are moving in the market. A high Velocity means coins are moving quickly on the network, while a low value means tokens are staying in addresses longer before being transferred.
The chart below shows Bitcoin's Velocity over time. As observed, Bitcoin’s Velocity increased during the 2021 bull run and peaked in mid-2022. However, after this peak, the metric started to decline sharply.
This decline continued until the end of 2023, after which the indicator stabilized. The chart reveals that current Velocity levels are the lowest in about 13 years, comparable to 2011. This trend offers insights into the current perception of Bitcoin by its users.
Bitcoin was originally designed to be a form of electronic cash for peer-to-peer transactions without central control. The fact that BTC tokens are not circulating frequently suggests they are not being used much for transactions. "Despite Satoshi’s vision of 'P2P Electronic Cash,' Bitcoin is now primarily seen as 'Digital Gold,'" says Ju, noting that institutions hold it without frequent transactions.
It remains uncertain if this low Velocity will continue. The indicator showed rapid increases in the past, indicating it could rise again. Historical patterns reveal cycles of high and low Velocity. Ju believes Bitcoin’s Velocity will peak again when it is widely used for payments.
Bitcoin's concept as electronic cash dates back to its creation, aiming for decentralized, everyday transactions. However, its usage has evolved. During the 2021 bull run, Bitcoin saw a surge in activity and Velocity, but this trend reversed after peaking in 2022.
One reason for this change is the growing interest from institutions, who view Bitcoin as a store of value rather than a transaction medium. They hold large amounts of Bitcoin to hedge against inflation and economic uncertainty, resulting in fewer transactions and lower Velocity.
The idea of Bitcoin as "Digital Gold" is gaining ground, with many seeing it as a safe asset like gold. This aligns with the low Velocity metric, as both institutions and individual investors tend to hold onto their Bitcoin longer, reducing transaction frequency.
However, Bitcoin’s role as electronic cash is not entirely gone. The cryptocurrency market is volatile and can change quickly. The Velocity metric has shown cycles in the past, suggesting it could rise again.
In conclusion, Bitcoin’s current low Velocity reflects a shift from its original purpose as electronic cash to being a store of value. Its future may balance these roles, with periods of high transaction activity and long-term holding phases. As the crypto ecosystem evolves, Bitcoin’s utility and perception will likely adapt, possibly leading to new peaks in Velocity when conditions favor widespread use for payments.
