Bitcoin’s network is experiencing a seismic shift, with transaction fees plummeting to decade lows as the price hovers tantalizingly close to six figures. This anomaly, observed in Glassnode data, challenges the traditional correlation between Bitcoin’s price rallies and blockchain congestion. It seems the usual onchain demand isn’t the driving force behind the recent price surge.
A New Dynamic in Bitcoin Trading
The once predictable dance of price hikes and transaction fee spikes is fading. A recent report from Galaxy Research highlights that median daily fees have dropped by over 80% since April 2024. With some blocks clearing at merely 1 satoshi per vbyte, nearly half of recent blocks remain underfilled. This starkly contrasts with previous bull markets, where demand for blockspace was robust, pushing fees upward. As explored in our recent coverage of Bitcoin’s mining difficulty adjustments, the network’s hashrate and mining difficulty continue to soar even as fees decline, adding another layer of complexity to the current market dynamics.
The driving force behind this shift? The rise of Bitcoin spot ETFs and custodians, which now hold upwards of 1.3 million BTC. These coins, once ensconced in custodial accounts, rarely re-enter circulation, reducing the need for frequent onchain transactions. Meanwhile, retail traders, who previously crowded the Bitcoin blockchain, are gravitating toward platforms like Solana, attracted by its more cost-effective and rapid transaction capabilities for memecoins and NFTs.
Miners Feeling the Pinch
This evolving landscape is particularly tough on Bitcoin miners. With block rewards halved to 3.125 BTC and transaction fees contributing less than 1% of block revenue by July, miners are facing squeezed profit margins. Many are responding by diversifying into high-performance computing (HPC) and artificial intelligence (AI) hosting—a pivot that’s gaining traction and investor approval. Additionally, as detailed in our analysis of miners’ reserve strategies, some miners are draining their reserves, which could further impact Bitcoin’s price outlook.
Rittenhouse Research, in an earlier report, suggested that Galaxy Digital’s strategic exit from mining might set a precedent for the sector. This diversification strategy seems to be resonating with equity markets. While Bitcoin’s price has dipped over 3% this year, the CoinShares Bitcoin Mining ETF has surged nearly 22%, indicating investor confidence in miners who are branching out beyond traditional block rewards.
The Broader Market Reaction
Even as Bitcoin’s transaction fees tumble, the broader crypto market isn’t immune to volatility. Bitcoin currently trades at $113,286.95, a 1.79% decline, after a brief plunge to a six-week low near $110,600. Ether, meanwhile, holds steady at $4,779, buoyed by Federal Reserve Chair Jerome Powell’s dovish remarks at Jackson Hole, which have raised expectations for a rate cut in September. This optimism extends to predictions of new highs for Bitcoin and a potential Ether breakout above $5,000, despite lurking risks from treasury adoption and equity market fluctuations.
Looking Forward
As the narrative unfolds, the blockchain’s role in settlement appears to be stagnating, raising pressing questions about the future of Bitcoin mining. With organic demand for blockspace dwindling, the sustainability of Bitcoin’s security model—heavily reliant on transaction fees—comes into question. If fees remain low, the path forward for miners might indeed lie in AI and HPC ventures, rather than Bitcoin itself.
The crypto landscape is ever-evolving, and this current phase is no exception. As the market recalibrates, investors, miners, and traders alike must navigate these shifting sands, pondering whether the trend towards diversification will continue to define the sector’s future.
Source
This article is based on: Asia Morning Briefing: Bitcoin’s ETFs Kill the Transaction Fees, Punishing the Miners More
Further Reading
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
