Bitcoin’s mempool has seen a notable decline in transaction volume over the past few months, with some days recording historically low activity, leaving blocks partially or completely unfilled.
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Since January, the average number of transactions per block has dropped to its lowest level in 10 months. The mempool, which typically holds tens of thousands of pending transactions, saw its average transaction count fall from 3,500–4,500 (May–November) to 2,700 in January and below 2,500 in February.
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On February 1, the mempool was completely empty, resulting in a series of half-empty or unfilled blocks. During this time, transaction fees dropped to an all-time low, averaging just one satoshi (0.00000001 BTC) per transaction.
The decline in pending transactions raises questions about network demand, fee structures, and potential impacts on Bitcoin’s security model, as historically, block space has remained competitive. Whether this trend signals temporary fluctuations or a structural shift in Bitcoin transaction activity remains to be seen.
Bitcoin Transactions Decline as Layer 2s and ETFs Shift Activity
Layer 2 Growth Moves Transactions Off-Chain
Bitcoin’s transaction volume is shrinking as more activity shifts to Layer 2 solutions that bundle multiple transactions into a single Bitcoin block. Networks like Lightning Network, Rootstock, Merlin Chain, and Stacks allow users to transact off-chain before finalizing transactions on the Bitcoin base layer, reducing congestion and fees.
This mirrors a trend seen in Ethereum, where Layer 2 scaling solutions like Arbitrum and Optimism handle most transactions, decreasing on-chain activity. The result? Fewer transactions per block and a shift in fee dynamics.
Bitcoin Is Flowing Into DeFi and ETFs
Beyond Layer 2s, a growing share of Bitcoin is being wrapped and moved to Ethereum or other Ethereum Virtual Machine (EVM)-compatible chains for use in decentralized finance (DeFi). Wrapped Bitcoin (WBTC) alone has a market capitalization of $12.5 billion, enabling BTC holders to participate in lending, staking, and yield farming.
Meanwhile, Bitcoin exchange-traded funds (ETFs) are absorbing large amounts of BTC, effectively removing them from circulation. These ETFs now hold $113.3 billion in assets under management, further reducing the available supply for on-chain transactions.
Miners Face Pressure as Fees Decline
Bitcoin miners rely on transaction fees to remain profitable, particularly after the April halving reduced block rewards to 3.125 BTC per block. Although block rewards still bring in over $300,000 per block at current prices, the drop in transaction volume and fees could threaten smaller miners struggling with high operational costs.
Matt Mudano, CEO of Arch Labs, warns that if smaller miners exit the market, Bitcoin’s mining ecosystem could become more centralized, raising potential security concerns over time.
The Push for Bitcoin Programmability
With Bitcoin transactions declining, some experts argue that enhancing Bitcoin’s programmability could drive more on-chain activity. Projects like BitVM aim to bring Ethereum-style smart contracts to Bitcoin, similar to Optimistic Rollups. Additionally, the OP_CAT upgrade, expected this year, could unlock new capabilities for Layer 2 networks, covenants, and ZK-rollups.
Mudano questions the current focus on scalability over programmability, stating:
“Why are we starting with scalability before fixing the programmability issue—which doesn’t exist on the base layer of Bitcoin?”
As Bitcoin evolves, the balance between scalability, security, and usability will shape its long-term trajectory in both traditional finance and decentralized ecosystems.
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