On-chain data suggests that Bitcoin is no longer used as electronic money by its user base, as the token’s circulation has seen a sharp decline.
Bitcoin “velocity” recently plunged to all-time lows
As CryptoQuant founder and CEO Ki Young Ju explains in a job on X, Bitcoin circulation has slowed recently. The relevant on-chain indicator here is “Velocity”, which tracks the speed at which tokens of the cryptocurrency circulate in the market.
When the value of this metric is high, coins move faster across the network. On the other hand, a low value implies that tokens are still in an address long before being transferred.
Below is a chart that shows how Bitcoin’s velocity has changed throughout its history.
The value of the metric appears to have registered a rapid decline over the last couple of years | Source: @ki_young_ju on X
As the chart above shows, Bitcoin velocity has increased over the period. Running of the bulls 2021 and had observed a peak in the middle of Bear Market 2022. However, after this peak, the metric completely reversed its trend and began to decline sharply.
This decline continued until the last months of 2023, and the indicator has been changing since then. The chart shows that these low levels that the measure recently consolidated are the lowest in about 13 years.
This would mean that the cryptocurrency’s circulation rate is the same as in 2011. As for the significance of the recent trend, it can tell us how the current cryptocurrency user base views the asset .
Bitcoin was originally meant to be cash in electronic form that works peer-to-peer (P2P), without requiring any central entity. The fact that BTC tokens are no longer in circulation would imply that they are not used much for monetary transactions. As the founder of CryptoQuant says,
Despite Satoshi’s vision of “P2P electronic money”, Bitcoin is primarily used as “digital gold”, with institutions holding it without frequent transactions.
It is unclear whether the recent low speed is here to stay for BTC, given that the indicator observed a rapid rise towards high values just a few years ago.
As the chart shows, the indicator has gone through cycles throughout cryptocurrency history, oscillating between highs and lows. Ju notes that Bitcoin will see its speed “peak one day when BTC is widely used for payments.”
BTC Price
Bitcoin extended its latest decline as its price has now fallen to just $66,400. The cryptocurrency’s returns now stand at -8% since Friday’s high of $72,000.
Looks like the price of the asset has plunged over the past day | Source: BTCUSD on TradingView
Featured image of Dall-E, CryptoQuant.com, chart from TradingView.com
