Bitcoin transaction fees have hit their lowest point in four years, bringing relief to users but raising concerns among miners. On July 10, the average fee for a Bitcoin transaction dropped to less than a dollar, a figure last seen during the height of the COVID-19 pandemic in 2020.
This significant reduction in fees is attributed to a decrease in network activity and demand for block space.
The dramatic fall in Bitcoin transaction fees is tied to several factors.
Primarily, there has been a decrease in the demand for block space and data volume. When fewer transactions are vying for inclusion in a block, fees naturally decrease.
Data from Ycharts shows that on July 9, Bitcoin miners processed a total of 654,037 transactions. According to Dune Analytics, of these, 92.1% were ordinary Bitcoin transactions, 4.6% were Bitcoin Ordinals and BRC-20 transactions, and 3.3% belonged to Runes.
Despite the lower fees, miners remained profitable due to reduced difficulty, which allowed them to process transactions using less computational power. While lower transaction fees are good news for users, they spell trouble for miners.
CryptoQuant’s CEO, Ki Young Ju, recently advised caution, predicting a slow market recovery over the next 2-3 months.
Ju’s insights reflect a cautious sentiment among industry experts as miners face tightening profit margins in the post-halving environment. The halving event, which cut the block reward miners receive by half, has led to reduced revenue for miners.
Related: Immediate and Long-Term Effects of Bitcoin’s Fourth Halving
As Ju noted, Bitcoin miners are showing signs of ‘capitulation’ as profit margins tighten. “Miner capitulation” refers to the process where miners reduce operational costs or sell portions of their bitcoin holdings to stay afloat during tough market conditions.
This sentiment is echoed by other analysts who observed a significant 7.7% decline in bitcoin’s hash rate, reminiscent of conditions following the FTX collapse in December 2022.
Despite these challenges, miners’ revenue for July 7 represented 1.14% of the total transaction volume, consistent with the average share over the past six months.
This consistency suggests that while individual transaction fees are lower, the volume of transactions helps maintain overall profitability.
Luxor Technology’s Hashprice Index revealed that the Bitcoin hash price plummeted by 52% to almost its lowest point ever on June 20th. Despite this significant drop, Bitcoin miners are still making a profit. The hash price is crucial for assessing the revenue generated by miners.
The reduction in fees for Bitcoin comes during a challenging period for the market. Bitcoin’s price recently fell below the $60,000 support level, and even plummeted to the $53,000 mark at one point.
Over the past six months, the market saw substantial growth, with the digital asset reaching new highs. However, recent weeks have seen bearish trends dominate, leading to liquidations in the leveraged market and substantial losses for spot holders.
Runes, a new Bitcoin-based protocol, has also seen a significant drop in transaction activity. From their peak, Runes transactions have taken a nosedive, plummeting by 88%.
Between June 22 and June 28, the average daily transactions for Runes were 37,820, with June 24 recording the lowest count since the protocol’s launch at 23,238 transactions.
This decline has impacted miner earnings, with Bitcoin miners earning less than 2 bitcoin from Runes in the six days preceding June 28, down from a high of 844 bitcoin on April 24.
Other Bitcoin-based protocols, such as Ordinals and BRC-20, have also seen declines in transaction counts and miner fees. These protocols initially provided additional revenue streams for miners, but their performance has largely declined following the April halving event.
The drop in transaction fees, while beneficial for users, raises concerns for the long-term security and sustainability of the Bitcoin network. Miners rely on transaction fees to supplement their income, especially after the halving event that reduced their block rewards.
“BTC fees were making up for lost block rewards,” said Carlos Mercado, a data scientist at Flipside Crypto.
He added that for Bitcoin to remain secure, miners must be able to recoup their real-world electrical and computational costs. With halving reducing their revenue by half overnight, the only ways to make up for the loss are higher prices or more revenue from transaction fees.
He mentioned:
“After the halving, there were some short-term spikes in on-chain BTC activity and fees. But generally, the Ordinals and BTC inscriptions narratives come and go.”
Justin d’Anethan, head of business development APAC at Keyrock, noted that low fees could have both positive and negative implications. He stated:
“From our perspective, this [low fees] is neither positive nor negative. Bitcoin endures as is. Miners must be feeling the pain, though, as the blow the halving must have dealt them was, for a while, softened by the higher transaction count.”
d’Anethan noted that there had been significant transaction spikes recently because of Ordinals and Runes inscriptions, but these activities have since slowed down.
He highlighted that without new catalysts, it is unlikely that transaction counts and fees for Bitcoin will increase significantly. He emphasized that this sector is very volatile and fast-paced, with new trends and products emerging and vanishing quickly.
Looking forward, experts have varying views on the sustainability and implications of the current low-fee environment. While some see it as a sign of a maturing market with more efficient transaction processing, others worry about the long-term impact on miners and network security.
