On-chain data suggests that Bitcoin is no longer being used as an electronic currency by its userbase as the circulation of the token has decreased significantly.
Bitcoin ‘Velocity’ Dropped to Historic Lows Recently
As explained by CryptoQuant founder and CEO Ki Young Ju in a post on X, Bitcoin circulation has recently decreased. The on-chain indicator of correlation here is “Velocity,” which keeps track of the rate at which cryptocurrency tokens circulate in the market.
The higher the value of this metric, the faster the coins move through the network. On the other hand, a low value means that the tokens are still inside the address for a long time before being transferred.
Below is a chart showing how the Velocity of Bitcoin has changed over 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 shown in the graph above, Bitcoin Velocity has been rising during the 2021 bull run and saw a peak in the middle of the 2022 bear market. Following this high, however, the metric completely reversed its trend as it began to decline even further.
This decline continued until the last few months of 2023, and the index has been moving sideways ever since. The chart shows that these new lows for the metric are the lowest in nearly 13 years.
This would mean that the level of cryptocurrency distribution is the same as in 2011. Now, regarding the importance of recent trends, it may tell us how the current cryptocurrency user base views the asset.
Bitcoin was originally intended to be a peer-to-peer (P2P) electronic cash, without the need for any intermediary at all. The fact that BTC tokens are no longer in circulation may mean that they are no longer widely used in financial transactions. As the founder of CryptoQuant puts it,
Despite Satoshi’s vision of “P2P Electronic Cash,” Bitcoin is primarily used as “Digital Gold,” with institutions holding it without regular transactions.
It is unclear whether the recent low Velocity is here to stay for BTC, given that the index has seen a rapid increase to highs in the past few years.
As the graph shows, the index has gone through the cycles of cryptocurrency history, changing between highs and lows. Ju notes that Bitcoin will see its speed “increase one day when BTC is widely used for payment.”
BTC price
Bitcoin has extended its recent decline as its price has now dropped to a mere $66,400. The return of the cryptocurrency now stands at -8% from the $72,000 high registered on Friday.
Looks like the price of the asset has plunged over the past day | Source: BTCUSD on TradingView
Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com
Source link
