Bitcoin is now more than just something people trade or hold as a store of value; it’s starting to pay interest.
But there’s a catch: the coins earning those rewards can’t move for months or years. A growing number of holders are locking their BTC into time-based contracts that promise yield but also freeze supply.
However, on the plus side, this tightens the market’s breathing room and opens a pathway to future supply squeeze-enabled price pumps.
Timelocked and staked Bitcoin are creating a duration structure in the UTXO set that affects free float, execution costs, and fee reflexes.
The change is most visible in Babylon’s self-custodial model, which uses Bitcoin script timelocks to let holders stake without wrapping coins, and in the broader rise of locktime use on L1.
Per Babylon, about 56,900 BTC are currently staked. According to Babylon’s staking script documentation, the design relies on CLTV and CSV primitives to enforce time, so the duration sits natively at the UTXO level rather than in a bridge or synthetic claim.
The macro backdrop for supply tightness is already in place.
The long-term holder supply is near 14.4 million BTC, and the illiquid supply is near 14.3 million BTC. Those are behavioral cohorts, not hard locks. Yet, they frame how much additional duration from timelocks can influence the marginal coin available to meet new demand or to sell into drawdowns.
An effective free-float proxy subtracts Babylon-staked coins and a discounted slice of other time-encumbered outputs from circulating supply to make that link concrete. The discount recognizes that some timelocks expire soon and some scripts permit partial spend paths.
The result is a free-float that changes with live staking and locktime usage rather than with price alone.
Governance and policy choices are shortening the operational window for stakers while raising the cost of protection. The unbonding delay for new stakes was cut from 1,008 to about 301 blocks, roughly 50 hours at target block time.
The same change raised the preset fee on pre-signed slashing transactions to 150,000 sats, which, at a typical 355-vB transaction size, equates to about 422 sat per vB.
That parameter aims to guarantee inclusion against censorship over a run of blocks and becomes a live stress dial when the fee tape heats up. In quiet conditions, preset slashing fees clear without delay, and staking UX is stable.
When median fee levels sit in the 50 to 200 sat per vB range, the preset still clears, but child-pays-for-parent packages for non-slashing operations become more expensive.
If median levels approach the slashing preset, slashing latency risk rises unless the governance minimum moves or policy changes improve the ability to relay and mine packages.
According to Bitcoin Optech, version-3 transaction relay, also called TRUC, and package relay are advancing in the policy track and are designed to make ancestor and child packages safer and more predictable, which matters when many users need to free encumbered coins at once.
Fee observations today do not fully reveal that structural pressure.
The market has printed median fees near 1 sat per vB, which points to slack blockspace. At the same time, mainnet.observer now breaks out height-based and time-based timelocks and displays fee-rate distributions, giving a way to track whether the share of encumbered UTXOs rises while typical fee buckets stay low.
If the timelocked share grows, the marginal user who needs to move fast relies more on ancestor packages and CPFP mechanics, so peaks in fee pressure can become sharper even if baseline demand looks unchanged.
This is a mechanical channel rather than a sentiment call, and it ties duration directly to the shape of fee spikes.
The size of the duration effect can be sketched with simple ranges. Using a circulating su