Bitcoin sits at an unusual crossroads in 2025: investor demand has exploded—driven chiefly by spot ETFs—while on-chain usage looks subdued by several measures. This divergence raises practical questions about fee markets, miner incentives, and how value accrues across Bitcoin’s growing multi-layer ecosystem. Recent research and market data shed light on why this is happening and what to watch next.
Demand Is Up: ETFs, Price Discovery, And Broader Access
Spot bitcoin ETFs have unlocked large, steady purchases from traditional investors. By July 2025, cumulative net inflows across U.S. spot products topped $50 billion, underscoring persistent demand for BTC exposure via regulated wrappers. Inflows remained a powerful short-term price driver through the summer.
Multiple outlets also documented new all-time-highs during August 2025 as ETF flows and macro tailwinds converged, reinforcing the narrative that traditional channels are now central to bitcoin price discovery.
Activity Is Down: Blocks Not Always Full, Fees Compressed
Despite record prices, several network-use indicators softened. Coin Metrics noted that blocks are not consistently full, and overall fee pressure has stayed weak—conditions that can weigh on miner profitability if they persist.
Glassnode’s mid-June “On-chain Ghost Town” observed fewer on-chain transactions but larger average sizes, implying activity is increasingly dominated by bigger entities rather than smaller retail flows. The same report flagged a meaningful decline in fee revenue, signaling tepid demand for scarce block space.
Independent research from Galaxy in August likewise highlighted a collapse in fee pressure, more partially filled blocks, and concerns about a still-dormant mempool after the 2024 halving—when the block subsidy fell to 3.125 BTC, increasing reliance on transaction fees over time.
Why Demand And On-Chain Usage Can Diverge
- ETF and institutional custody
Much of today’s demand is absorbed off-chain in custodians that rarely move coins. Galaxy estimates spot ETFs collectively hold a significant BTC stack, and these coins typically sit idle unless there are creations/redemptions. That’s bullish for price via reduced float, but it doesn’t show up as everyday address activity. - Transaction batching, L2s, and changing behaviors
Exchanges and payment services batch transactions more aggressively than in prior cycles. Meanwhile, some payments and trading migrate to custodial venues or to second-layer channels. Public Lightning Network capacity has actually declined versus late-2023, but experts caution this metric misses private channels and evolving routing design—so lower visible capacity doesn’t necessarily equal lower usage. - Stablecoins and multi-chain settlement
A large share of day-to-day crypto settlement now rides on stablecoins across high-throughput chains (e.g., Ethereum L2s, Solana), which naturally reduces the need for routine settlement on Bitcoin’s base layer even as bitcoin itself is being accumulated as a treasury or macro asset. Sector analyses place stablecoin market capitalization well above $200B in 2025, highlighting their role as transactional “plumbing.”
Risks If Fee Markets Stay Quiet
Fee markets are a crucial long-run pillar of Bitcoin’s security budget. With each halving, miner income relies more on transaction fees. If demand for block space remains muted, miners face tighter margins, and the network leans harder on price appreciation and periodic inscription booms to sustain fees. Both Coin Metrics and Glassnode have explicitly warned about subdued fees and inconsistent block fullness in 2025.
Counter-Signals: Growing Settlement Volume, Fewer But Larger Transfers
The same datasets show that while counts of transactions and active addresses are lower than many expected at this stage, settlement volume per transaction has risen—consistent with a market where larger players move funds less frequently but in bigger clips. That supports the idea of bitcoin as a high-value settlement and reserve asset, rather than a high-velocity payments rail on layer 1.
Lightning Network In 2025: Reading The Capacity Drop
Public Lightning capacity fell from over 5,400 BTC (late-2023) to roughly 4,200 BTC by August 2025, a drop widely reported as a 20% contraction. However, capacity measures only public channels; it omits private channels, custodial flows, and multi-path routing. Analysts argue the change reflects network restructuring and efficiency gains more than a collapse in usage.
Metrics To Watch Through 2026
On-chain demand
Watch block fullness, median fees, and miner fee share of revenue. A durable rise suggests healthier block-space competition.
Adoption and distribution
Track ETF net flows and the breadth of distribution across platforms. Citi’s updated framework emphasizes adoption over cost-of-production models, with ETF flows tightly linked to price action.
Entity-adjusted activity
Prefer metrics that filter noise (e.g., entity-adjusted transaction counts, large-transfer share) to see whether fewer, bigger transfers continue to dominate settlement.
Layer-2 health
Monitor Lightning reliability and throughput beyond public-capacity snapshots, plus emerging Bitcoin-native applications that could stoke organic fee demand in future cycles.
Stablecoin displacement
Stablecoin supply growth and transaction volumes on other chains are an important barometer for cross-chain settlement preferences that might divert routine activity away from Bitcoin L1.
Scenarios: What The Next 12–18 Months Could Look Like
Base case
ETF flows remain net positive but slower; L1 usage recovers gradually as inscriptions/app protocols cycle back and L2 tooling improves. Fee share trends higher but remains below prior peaks.
Bull case
Distribution of ETF access broadens further across major broker-dealer platforms; new BTC-native protocols and periodic inscription waves tighten block space, lifting fees sustainably. Miner incentives strengthen without relying solely on price.
Bear case
ETF demand cools while L1 fees stay suppressed; miners face a prolonged revenue squeeze; Lightning and app activity do not offset fee weakness, reviving debates on long-run security budgets.
Practical Takeaways For Teams And Investors
Content and product teams
Explain to users why “low on-chain counts” can coexist with strong price and institutional adoption. Educate on custody, batching, and layers to set the right expectations.
Risk and treasury teams
Stress-test scenarios where ETF flows slow and fees stay muted; consider fee-market sensitivity in any long-term thesis on security budgets.
Builders
Focus on use cases that reliably create fee pressure on L1 or throughput on L2. Measure success with block fullness, fee share, and sustainable user activity—not just one-off spikes.
