Transaction Costs for Bitcoin Increase Tenfold Due to Rise in Network Activity

On August 22, Bitcoin transaction fees experienced a dramatic increase, with the average cost per transaction soaring by an astonishing 937.7%, escalating from $0.74 to $7.679.

This sharp rise was mainly fueled by increased demand for network capacity, marking a significant departure from the relatively stable fees that had been noted since July.

Up until mid-August, Bitcoin transaction fees had consistently stayed below the $2 threshold, dipping as low as $0.558 on August 18.

Lower Fees Resulted in Decreased Miner Earnings

While reduced fees made Bitcoin transactions more affordable for the public, they concurrently posed a risk to miners’ earnings, as lower fees equate to diminished income for those who validate transactions on the network.

The abrupt increase in fees on August 22 was associated with an overwhelming demand for network bandwidth, resulting in a significant rise in the costs of sending and receiving Bitcoin.

#Bitcoin transaction fees have experienced a remarkable increase, rising by over 300% in just 24 hours.
This surge is linked to a notable uptick in network activity, which has caused congestion and extended transaction processing times. Consequently, users are incurring higher fees… pic.twitter.com/AF8aGuEvLZ

— Satoshi Talks (@Satoshi_Talks) August 23, 2024

The increase placed pressure on investors, with many within the crypto community facing considerably higher expenses to finalize transactions.

For instance, one user was required to pay 0.5 BTC in fees to consolidate merely 0.55 BTC during the peak demand phase.

Nevertheless, this spike in fees was temporary.

By August 23, data from the Bitcoin mempool revealed that average transaction fees had dropped back to $0.34.

At the same time, data analytics firm CryptoQuant noted a significant decline in Bitcoin demand, with growth decreasing from 496,000 BTC in April to a negative growth of 25,000 BTC in August.

This slowdown has been partially attributed to a decrease in purchases by U.S.-based spot Bitcoin ETFs.

Bitcoin Miner Reserves Reach Two-Year Peak

As reported, Bitcoin reserves held by miners have risen to their highest level in over two years, raising concerns regarding a potential drop in Bitcoin’s price.

Historical trends indicate that when miner reserves reach substantial levels, it often precedes a downturn in the cryptocurrency market.

Specifically, this increase has brought miner reserves to a total of 368,000 Bitcoin, valued at around $22.36 billion.

“Historically, increases in Bitcoin OTC desk balances have been linked to declines in Bitcoin prices,” CryptoQuant stated in a recent report.

The 70% rise in miner OTC balances over the past three months suggests that miners may be preparing to sell significant amounts of Bitcoin, which could apply downward pressure on the market.

The report draws comparisons to previous instances where elevated miner reserves were followed by sharp price drops.

For example, in May 2018, when miner OTC balances surpassed 400,000 BTC, Bitcoin’s price was approximately $8,475.

By December of that year, the price had fallen by 63% to $3,183.

A similar trend was observed in November 2021, when Bitcoin was trading at around $64,000 and miner reserves were close to an all-time high of 500,000 BTC.

Meanwhile, Iran is implementing measures to address illegal cryptocurrency mining as the country faces power shortages worsened by a severe heatwave.

The government is providing financial incentives to citizens who report unauthorized crypto-mining activities, offering rewards of up to 1 million toman (approximately $24) per tip.

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