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Monday Mining Metrics: High TX Fees Offset Rising Mining Difficulty
Bitcoin Mining Update - 11/06/2023
Higher Transaction Fees Offset Rising Difficulty
Over the weekend Bitcoin miners were blessed with high-fee transactions flooding the mempool.
The chart below depicts the amount of low, medium, and high, TX fees; a swarm of >10 sat/vByte transactions were recently broadcasted. At the time of writing users wishing to get into the next block must pay ~40 sat/vByte.
2023 has given glimpses into an incredibly bullish future for Bitcoin mining. While mining bears point to the diminishing block subsidy, the TX fee market tells a different story.
7% of Miner Revenue from Fees
Total miner revenue from transaction fees has eclipsed 7% in the wake of the increased mempool activity.
We’ve touched on this idea before but it’s worth revisiting: transaction fees are the dark horse of Bitcoin mining economics during the coming cycle. The ordinal craze showed what a mild increase in demand for on-chain settlement can do to the TX fee market; miners were earning more in fees than they were from the 6.25 block subsidy.
It is generally understood that the next bull market will be driven by institutions. Large capital allocators having demand for the Bitcoin network for means of transaction settlement will have a much higher impact on fees than a few retail investors mining wizard pictures did.
The size of blocks isn’t going to increase, and layer 2s, even lightning, are not yet in a place to service the hoard of demand that is penetrating the market. It is highly likely that on-chain fees will be consistently greater than the 3.125 BTC block subsidy during the coming halving epoch.
The case for mining is already bullish given the effect that a spot ETF will have on the price of BTC. A high transaction fee environment on top of that is icing on the cake.
Check out this clip of Michael Saylor explaining the bullish future for Bitcoin miners as it relates to transaction fees.
4.6% Projected Difficulty Increase
We can now say with confidence that the bitcoin price pump to $35,000 has resulted in some less efficient miners plugging their machines back in; with mining difficulty projected to increase by ~4.6% during this epoch.
Difficulty jumps like this are important to keep in mind during times in which mining profitability drops, either as a result of downward price action or the halving. We can reasonably expect that difficulty would drop by as much or more on a % basis in those scenarios, as these miners would then be forced to unplug.
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