Main Points:
- Record-breaking price surge past $106,000
- Rising transaction fees signaling heightened network demand
- Declining daily transaction count despite price rally
- Illiquid supply reaching new all-time highs
- Robust ETF inflows underlining institutional interest
- Macro factors and rate-cut hopes fueling investor optimism
Record-Breaking Price Surge Past $106,000
Bitcoin shattered expectations in mid-May 2025, climbing above the $106,000 mark—surpassing its previous high of $105,600 reached on May 12.This rally underscores Bitcoin’s enduring appeal as a scarce digital asset. Prices were buoyed by a confluence of factors, including significant inflows into spot exchange-traded funds (ETFs) and renewed optimism around potential interest-rate cuts by central banks.
Rising Transaction Fees Signal Heightened Network Demand
Alongside the price rally, Bitcoin’s network demand has been reflected in soaring on-chain fees. The seven-day moving average fee hit $2.40—the highest level recorded in 2025—marking roughly a $1 increase since early May and suggesting growing competition for block space.This uptick indicates more users are willing to pay premium fees to prioritize their transactions, hinting at renewed retail and institutional activity on the network.
Declining Daily Transaction Count Despite Price Rally
Paradoxically, while fees have spiked, the average daily transaction count has fallen sharply. From approximately 507,000 transactions on April 22, the figure dropped by 35% to around 330,000 transactions per day. This divergence suggests that, although fewer transactions are taking place, each one is valued more highly—perhaps indicative of larger, value-heavy transfers by institutions rather than numerous small retail buys.
Illiquid Supply Reaches New All-Time Highs
On-chain analytics reveal that Bitcoin’s “illiquid supply”—the portion held by entities unlikely to sell—has hit a record 14 million BTC. As coins become increasingly locked away in long-term wallets, the freely tradable supply on exchanges dwindles. This dynamic can intensify price movements when demand surges, as fewer liquid coins are available to meet buying pressure.
Robust ETF Inflows Underlining Institutional Interest
Institutional adoption remains a pivotal driver of Bitcoin’s momentum. Since early April, the eleven major spot Bitcoin ETFs have collectively attracted over $5.61 billion in inflows, with BlackRock’s iShares Bitcoin Trust and Fidelity’s Wise Origin Bitcoin Fund among the biggest beneficiaries. On May 16 alone, Bitcoin ETFs recorded net inflows of $260.2 million, highlighting sustained bullish sentiment from asset managers.
Further, while some hedge funds adjusted positions—Millennium Management cut its iShares stake by 41% and exited another ETF—others increased their exposure. Brown University initiated a $4.9 million position, and Abu Dhabi’s Mubadala fund expanded its holdings to nearly $409 million. These flows suggest that, despite momentary repositioning by tactical traders, the broader institutional narrative for Bitcoin remains intact.
Macro Factors and Rate-Cut Hopes Fueling Investor Optimism
Bitcoin’s rally coincided with growing market expectations for U.S. interest-rate cuts later in 2025. On May 16, hopes for easier monetary policy added to buying pressure, pushing Bitcoin past $104,000 before it eventually reached the $106,000 threshold. Lower rates tend to weaken the U.S. dollar and drive investors toward alternative stores of value, thereby amplifying Bitcoin’s appeal.
Conclusion: The Supply Shock Thesis and What Lies Ahead
The convergence of record-high prices, surging transaction fees, dwindling daily transaction volumes, and a record illiquid supply paints a compelling picture of an impending “supply shock.” As institutional inflows remain robust and macroeconomic conditions favor risk assets, the stage appears set for further price discovery. However, the declining transaction count cautions that this rally may be driven more by large players than broad-based retail participation—potentially introducing volatility if institutional sentiment shifts.
For investors seeking new crypto opportunities or practical blockchain use cases, monitoring on-chain metrics (like illiquid supply and transaction fees) alongside traditional indicators (ETF flows and macroeconomic signals) will be crucial. If Bitcoin’s supply shock thesis holds, limited liquid supply amid rising demand could propel prices even higher. Yet, market participants should remain vigilant for signs of profit-taking or regulatory headwinds that could cool the fervor.
