- The percentage of miner revenue from fees reached an ATH on halving day.
- Miners have been selling their holdings for more than a month after the halving after HODLing.
Bitcoins [BTC] halving events cover the crypto space, what the Olympics mean for the sports fraternity, and Academy Awards for movie buffs. Halving, a highly anticipated and celebrated event, tends to increase the economic value of the world’s largest digital asset by squeezing supply.
However, regardless of the perceived bullishness, these events have had a negative impact on the economics of Bitcoin mining, forcing miners to adopt new methods to improve their profit margins.
Halvings – A pain for Bitcoin miners
Miners famously validate and add transactions to the Bitcoin ledger, acting as an essential cog in the chain’s daily operations. For their part, miners are making huge investments in setting up mining infrastructure to carry out this task.
In return, they are compensated with a fixed subsidy from each block they mine, along with user transaction fees.
Halvings attack the crucial part of their income: they block rewards. Each of the four such events in Bitcoin’s short history has cut rewards by half, with the last one cutting the reward from 6.25 BTC to 3.125 BTC. The progressive decline was examined by AMBCrypto using Glassnode data.
Source: Glassnode
Similarly, after the next halving, rewards would drop to 1.5625 coins per block, and once all Bitcoins have been mined, estimated to be around 2140, miners will earn revenue only from transaction fees.
This meant that miners would have to double their mining investments to achieve the same return after the halving, in other words to break even.
So where lies the solution?
The importance of transaction costs
As mentioned earlier, the transaction fees paid by users with each halving provided a strong revenue stream for miners. This meant that there was a strong case for looking for opportunities that could increase the usage of the Bitcoin network and generate more fees for the miners.
There will be innovative token protocols such as Ordinals and Runes.
We recently saw the Rune Protocol go live with the halving block – 840,000. Developed by Casey Rodmarmor, who also introduced the Ordinals concept last year, Runes also allows users to mint tokens on the Bitcoin chain.
The results were immediate. During the halving block, a whopping 37.62 BTCs in fees were collected by miners, worth almost $2.4 million at prevailing market prices.
Combined with the reduced block grant of 3.12 BTCs, miners made more than $2.6 million from the block, AMBCrypto found using Mempool data.
Source: Mempool
In fact, the percentage of miner revenue from fees reached an all-time high (ATH) of 75% on halving day. Interestingly, the previous spikes in transaction fees occurred during the Ordinals frenzy in December and May last year.
Source: Glassnode
The way forward
While the frenzy has subsided since half-day, there is no doubt that protocols like Runes and Ordinals are fueling speculative activity to create new coins, especially among crypto épées.
This helped unlock a new use case for the first-generation network. Until 2023, Bitcoin’s reputation was limited to being a peer-to-peer (P2P) payment network with not much practical use.
However, with Ordinals and Runes, it is starting to position itself like other conventional layer 1 blockchains, allowing the minting of NFTs and other fungible tokens.
All this works well in favor of Bitcoin miners. The more the blockchain is used for the above activities, the more money they would make and offset the losses due to the halving.
The hash rate continues to increase
The hash rate, or the computing power of miners, has been on an upward trend over the years.
With the prospect of more players entering the industry and difficulties increasing, there was a greater need to look for efficient Bitcoin mining machines that generate more hash rate per unit of electricity consumed.
Source: Glassnode
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Interestingly, after more than a month of HODLing, miners immediately unloaded their bags on halving day. These higher revenues due to the spike in fees may have prompted them to sell.
Proceeds from these sales would likely be used to invest in more cost-effective equipment.