Bitcoin News Today: Bitcoin Faces Risk of Becoming Dormant Settlement Layer as On-Chain Activity Fades

Galaxy Digital has raised concerns that Bitcoin may be evolving into a settlement layer with little to no settlement activity, warning that declining on-chain fees and the migration of volume to alternative blockchains and ETFs could undermine the network's economic model and security. The firm highlighted that as more Bitcoin transactions move off-chain, through custodial services and exchange-traded funds (ETFs), the Bitcoin blockchain is increasingly being bypassed for everyday use. This shift could reduce the demand for block space, leading to lower transaction fees and, ultimately, weaker economic incentives for miners [1].

The firm pointed to data showing that daily Bitcoin transaction fees have fallen to levels not seen since 2011, a sign of diminished on-chain activity [2]. This trend, if sustained, could compromise the self-sustaining nature of the Bitcoin network, where miner rewards and fees are critical to maintaining security and consensus. Alex Thorn, Head of Firmwide Research at Galaxy Digital, noted that the growing reliance on custodial platforms and faster alternative blockchains may further accelerate this shift, pushing more Bitcoin volume away from the core network [3].

According to the analysis, the rise of spot Bitcoin ETFs—which hold approximately 1.3 million BTC—has not generated on-chain fees, effectively removing a significant portion of Bitcoin activity from the blockchain. This development raises questions about the long-term role of Bitcoin as a transactional network rather than just a store of value. If the pattern continues, Bitcoin could function primarily as a settlement layer used only occasionally, rather than as an active and dynamic transactional network [1].

Galaxy Digital’s warnings reflect broader concerns about structural shifts in the crypto landscape. As faster, more scalable alternatives emerge, Bitcoin faces increasing pressure to justify its continued relevance beyond its role as a digital asset. Mike Novogratz, CEO of Galaxy Digital, has previously highlighted the need for Bitcoin to adapt to these changes, particularly in the face of rising competition from layer-1 blockchains that offer programmable smart contracts and higher throughput [4].

The firm did not provide specific forecasts for when these risks may materialize but emphasized that the current trajectory poses a potential threat to the long-term sustainability of Bitcoin’s economic model. The analysis comes as the crypto industry continues to evolve, with increasing adoption of institutional-grade products and off-chain infrastructure reshaping the way Bitcoin is used and valued.

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[1] Bitcoin Risks Becoming a Settlement Layer With Nothing to Settle: Galaxy Sounds Alarm (https://cryptopotato.com/bitcoin-risks-becoming-a-settlement-layer-with-nothing-to-settle-galaxy-sounds-alarm/)

[2] Bitcoin Daily Transactions Fees Fall to 14-Year Lows (https://beincrypto.com/bitcoin-daily-transactions-fees-fall-to-2011-levels/)

[3] Bitcoin's Fee Market Stagnation Threatens Network Security (https://www.ainvest.com/news/bitcoin-news-today-bitcoin-fee-market-stagnation-threatens-network-security-sustainability-2508/)

[4] scaling: News & Updates (https://cryptodnes.bg/en/tag/scaling/)