Bitcoin fee markets are showing small signs of life despite bitcoin’s price falling about 70% from its last all-time highs and hash price – a measure of the value of the hash rate – decreasing by roughly the same amount.
Fees and the long-term outlook for fee revenue for miners is a hotly debated topic, especially during downtrends in the market. Bear markets are prime time to discuss fees, not only because market participants are bored and anxious, but also because this source of income dwindles dramatically during these times.
Despite the ongoing bear market – which just completed its eighth consecutive month – the bitcoin fee market is still showing signs of life. This article provides an overview of some startling data on bear market fees, and it discusses in the context of these numbers the likelihood of deciding whether Bitcoin’s future is doomed or relatively positive, despite what a growing number of Loud critics continue to assert. .
Bitcoin Bear Market Fee Data
Looking at absolute royalty income, the growth trend for dollar-denominated royalties is still slightly downward. Most of the decline occurred in the final months of 2021, however, and year-to-date fees are mostly flat. The chart below shows total weekly fee revenue from the market peak in November 2021 to present with a logarithmic trendline to highlight the overall fee growth trajectory.
Data Source: Coin Metrics
But weekly charges aren’t the most interesting data. Instead, looking at what percentage of mining revenue comes from royalties is one of the strongest indicators of the health of the industry. A necessary condition for Bitcoin to have a healthy long-term prospect is that royalty revenue eventually supplants a significant portion of current subsidy revenue, so that miners remain incentivized to help keep the network secure despite the eventual demise of miners. grants, so that hash rate doesn’t drop to dangerously low levels.
Somewhat surprisingly, even though the bitcoin market has continued to decline for months, the percentage of daily mining revenue coming from fees has slowly increased since the market price crash began in November 2021.
Data Source: Coin Metrics
Of course, fees in the range of 1% to 3% represent an incredibly large reduction compared to the 10% to 20% range that miners took advantage of during the heat of the previous bull market. The road to full recovery of fee income is likely to be a long one and will likely hinge on the resurgence of bullish price action.
Bitcoin Fee Market Reviews
Single-digit percentage fee revenue will certainly bear the brunt of criticism about Bitcoin for as long as the current bear market persists. Journalists are reports and notice on perceived weaknesses in the bitcoin fee market. Some traders and researchers are apparently convinced that low fees spell death for Bitcoin. And some top developers are defend to change Bitcoin to include tail issuance as a solution for the less-than-robust fee market.
Even after market trend changes, some of the critics will continue to hammer their talking points while other blockchains are seeing increased use of various applications that are not (yet?) built on Bitcoin. And some bitcoin-adjacent builders are optimistic that a more robust fee market will come as more applications are built on Bitcoin.
But putting aside all that guesswork, criticism, and (in some cases) generalities madnessit is important to remember that fee data shows that – at the very least – royalty income is cyclical, as are price trends. And mentioned earlier, bear markets (when fee income is low) are the primary opportunities in this cycle to highlight perceived fundamental weaknesses in network fees.
The line chart below shows daily fees as a percentage of total mining revenue since the start of 2016. directly coincide with the last two bitcoin bull market periods. In addition, the quasi-bull market period in 2019 and a simultaneous increase in fee income are apparent.
Data Source: Coin Metrics
There is no indication that this cyclical fee pattern will break with bitcoin’s cyclical price action. The most likely near-term outcome is continued criticism of the fee data for as long as the downtrend lasts.
But most builders and investors in the Bitcoin economy realize that the current fee data should be watched but not panicked. And the cyclically volatile royalty income in the early years of Bitcoin’s second decade is not a catastrophic problem.
The Future of Bitcoin Fees
The fee market and Bitcoin’s “security budget” (the sum royalties and block grants) will always be subjects that are meticulously analyzed and hotly debated. These conversations are likely to become even more contentious as alternative blockchain protocols generate significant fee revenue – sometimes even more than Bitcoin’s numbers – from various applications designed for different use cases in the broader blockchain industry. cryptocurrency.
But the Bitcoin economy continues to strengthen, and despite what the loudest critics say, the current data gives no long-term cause for concern. Using bitcoin scaling protocols (e.g., the lightning network) continues to grow, the mining sector continues building and expansion despite the bear market, and the general usage and awareness of bitcoin is still strongtaking into account market conditions.
This is a guest post by Zack Voell. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.