In anticipation of the miner profitability to be reduced by 50%, that is halving, the percentage of BTC mining revenue generated from transaction fees shot up to its highest levels since July 2019, as per Coin Metrics.
“This is a positive signal for miners, as an increase in transaction fees can potentially make up for some of the lost block reward revenue after the upcoming halving.”
In the weeks leading up to the halving, it went above 6% which usually remains around 2%. In mid-2019, it went up to as high as almost 12%.
It is the result of a spike in bitcoin average transaction fee which also climbed to $3.19 on May 8th, last seen in July. During this gap, the fees remained below a dollar for the most part. The highest this fee has been was on December 22 during the 2017 bull run.
Besides fees, mempool data shows a massive backlog of bitcoin transactions. At one point today, 34.98k bitcoin transactions were waiting to be confirmed and processed by Bitcoin miners.
The revenue generated from both block rewards, which is now officially 6.25 BTC, and transaction fees are crucial for a proof-of-work (PoW) blockchain, as this revenue provides an incentive for miners to secure the network.
In the long-run, transaction fees will become an increasingly important part of bitcoin’s security model as the block reward continues to be cut in half every four years.
“As block rewards diminish, a larger portion of miner revenue will need to come from transaction fees. Therefore the percentage of BTC mining revenue generated from transaction fees is an important measurement for a blockchain’s long term health and security.”
Miners to be no more the biggest seller of Bitcoin
The reduction in block rewards also means, “miners will cease to be the biggest seller of bitcoin,” points out on-chain analyst Willy Woo. In turn, “exchanges selling their BTC fees collected into fiat” will bring the biggest sell pressure.
These exchanges or “tax agents on traders” will extract fees in BTC that will be dumped onto the markets and then sold for fiat the same as miners do.
Unlike traders buying or selling, where every trade has a buyer and a seller as such smart money buying or selling, miners and exchanges are unmatched sell pressures on the market.
The volume is already growing, on the spot exchanges the “real volume” hit $4 billion recently while the total aggregate daily volumes of bitcoin futures was $27 billion, as per Skew.
“The rise of the BitMEX style futures exchanges has made an irrevocable footprint on the price, we have much more sideways now from the additional sell pressure. While price moves more sideways, this creates an environment where large leverage traders have an easier time strategically liquidating the bulk of traders from their positions,”
and as such more volatility, explained Woo.
From here on in, futures exchanges that bring liquidity to markets will be the “largest bearish pressure on Bitcoin” further slowing down the price increase.