A transition to the compensation market
Bitcoin’s transaction costs have risen by almost 250% since the third time the bitcoin halving occurred, which was on May 11. It seems too early, but this could be the start of the transition to a more sustainable compensation market. This means that miners are less dependent on a fee per block found, but instead become dependent on the number of transactions in that block. From a macro perspective, the additional security of the network outweighs the higher costs for the users. Well, none of us live on a macro level.
Costs rise, so price falls?
Since the halving, the average amount required to send bitcoin transactions has increased from $ 2.50 to $ 6.40. The average transaction costs of bitcoin per month have not exceeded $ 2 since August 2019.
The last time the average cost reached $ 6 was in July 2019. This was the beginning of a falling bitcoin price, which would take several months. In those summer and fall months, transaction costs increased as many traders and investors moved their coins to exchanges to sell them.
The opposite turns out to be true
Now that the transaction costs are so high again, it is logical to expect that the price will now also fall for months on end. However, there is only one, which does not correspond to reality. According to Glassnode, investors are taking their bitcoins from the markets en masse. Since the crash of March 12, you see that many bitcoins are being taken from exchanges, instead of being sent to them. Glassnode calls this the largest and longest BTC exchange downtrend in the history of bitcoin. This sounds better in English.
A possible explanation for this decline is that investors are withdrawing money from the exchanges to keep it in cold storage, which means a good long-term prospect.
In any case, these high transaction costs are not bad for the miners. Because the block rewards have been halved, this income must be compensated for somewhere. In any case, it is an incentive to continue mining in the short term.
More computing power is safer
The sudden rise in bitcoin’s transaction costs can be a drawback for users, but it does keep miners keeping bitcoin’s network safe. The more fee, the more attractive it is to mine. If the computing power of all miners increases, the bitcoin network is more secure.
It is interesting to keep an eye on whether the bitcoin network is actually undergoing a transition, or whether this will be over in a few days.