Fees and the long-term outlook for revenue from mining fees is a hotly debated topic, especially during bearish market trends. Bear markets are the best time to discuss fees not only because market participants are bored and anxious, but also because this source of revenue drops considerably during these times.Despite the ongoing bear market – which has just finished its eighth consecutive month – the bitcoin fee market is still showing signs of life. This article provides an overview of some surprising bear market fee data and 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 avid critics continue to claim.
Bitcoin Bear Market Fee Data
Starting with absolute commission revenues, the dollar-denominated commission growth trend is still slightly downward. Most of the decline occurred in the last few months of 2021, however, and year-to-date rates have mostly been flat. The chart below shows total weekly commission revenue from the peak of the market in November 2021 to date with a logarithmic trend line to highlight the overall commission growth trajectory.
But the weekly rates are not the most interesting data. Instead, looking at what percentage of mining revenue comes from fees is one of the strongest indicators of the health of the industry. A precondition for Bitcoin to have a healthy, long-term outlook is that commission revenue eventually replaces a significant portion of current grant revenue, so that miners remain incentivized to energetically contribute to network security despite the ‘eventual disappearance of subsidies, so that hash rate doesn’t drop to dangerously low levels.
Somehow surprisingly, even as the bitcoin market has continued to decline for months, the percentage of daily mining revenue from commissions has slowly increased since the market price crash began in November 2021.
Of course, commissions of between 1% and 3% are an incredibly large 10% to 20% reduction that miners enjoyed during the heat of the previous bull market. The road to full recovery of commission revenue is likely to be a long one and will likely depend on the resumption of bullish price action.
Criticism of the Bitcoin Fee Market
The single-digit percentage fee revenues will surely bear the brunt of criticism of Bitcoin as long as the current bear market persists. Journalists are reporting and opinion on the perceived weaknesses of the bitcoin fee market. Some Merchants And researchers they are apparently convinced that low fees mean death for Bitcoin. And some prominent developers are arguing to change Bitcoin to include a tail issue as a solution to the less-than-robust fee market.
Even after the market trend changes, some of the critics will continue to hammer talking points as other blockchains see increased use of various applications not (yet?) based on Bitcoin. And some builders adjacent to Bitcoin are optimistic that a stronger commission market will come as more applications are based on Bitcoin.
But putting aside all this guesswork, criticism, and (in some cases) general insanity, it’s important to remember that commission data shows that, if nothing else, commission revenue is cyclical, just like price movements. And mentioned earlier, bear markets (when commission income is low) are the main opportunities in this cycle to highlight perceived fundamental weaknesses in network fees.
The line chart below shows daily commissions as a percentage of total mining revenue since the beginning of 2016. From even a cursory glance at the visualization, it’s easy to see that the two biggest spikes in commission revenue directly coincide with the last two. periods of bitcoin bull market. Furthermore, the near-bull market period during 2019 and a simultaneous increase in fee income is evident.
There is no indication that this cyclical fee pattern will break out of bitcoin’s cyclical price action. The most likely short-term outcome is continued mishandling of commission data by critics as long as the downtrend lasts.
But most builders and investors in the Bitcoin economy realize that current fee data is something that should be monitored but not panicked. And cyclically volatile fee income during Bitcoin’s early second decade isn’t a catastrophic problem.
The future of Bitcoin fees
The Bitcoin commission market and the “safety budget” (the sum of commission income and subsidies in bulk) will always be meticulously analyzed and hotly debated topics. These conversations are likely to become even more controversial as alternative blockchain protocols collect significant fee revenue – sometimes even more than Bitcoin numbers – from various applications built for different use cases in the broader cryptocurrency industry.
But the Bitcoin economy continues to go strong, and despite what the most ardent critics say, the current data doesn’t give cause for long-term concern. The use of Bitcoin’s scaling protocols (e.g. Lightning Network) continues to grow, the mining sector continues to grow and expand despite the bear market, and the general use and awareness of Bitcoin is still strong, considering the conditions of the market.
This is a guest post from Zack Voell. The views expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.