Bitcoin's Fees Spike To All-Time High After 4th Halving Block
Originally published to Theya Research — subscribe here. Follow Joe on X.
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the cliff-notes:
- the reward in halving block 840,000 was 6x higher than usual
- this is due to a new token protocol launching in block 840,000, called Runes
- fees hit an all-time high but have since cooled off
- post-halving miner profitability is chugging along A-OK so far
Winds of change are in the air. Can you feel it? Bitcoin just underwent its 4th halving event last Friday, and buzz has eclipsed the ecosystem as transaction fees simultaneously shot up to record-high levels. The typical reward for a bitcoin block pre-halving is shown on top, around 7 BTC in total between the block subsidy and transaction fees. The total reward for halving block 840,000 was 40.7 BTC, more than $2.6 million at today's market price:
Here's the thing: the fee spike has little to nothing to do with the halving itself. It has to do with a new token protocol that launched on top of Bitcoin at block height 840,000, called Runes.
It uses Bitcoin's OP_RETURN data, which allows users to attach up to 80 bytes of extra data to a Bitcoin transaction output. Anybody can mint a rune by specifying a name, ID, symbol, quantity, and other data. Users can then sign with their private key and broadcast the transaction to the Bitcoin network.
Bitcoin's block reward has two pieces:
- Block Subsidy — the newly minted bitcoin in each block. It is now set at 3.125 BTC/block, and is programmatically halved every 210,000 blocks.
- Fees — the transaction fees paid to miners for block space.
A massive influx of users minting Runes in block 840,000 and blocks over the subsequent 24 hours drove fees as a % of the total block reward to a record-high level of 74%. The activation of Runes also drove the longest unbroken period of blocks with transaction fees higher than their block subsidy.
Mean transaction fees have since come down, from $250 to sub-$40, below their late-2017 averages. They have normalized back to 35% of the total block reward, in line with its historical trend for the last year.
This is the first time that a major fee spike had nothing to do with people cashing out at a market top or bottom. We had a fee spike in late 2017 and early 2018, 2019, 2020, 2021, once we passed previous all-time highs in 2024, and the Runes protocol launch. Note the size of the spike in fees as a % of the block subsidy across all of these events, and you'll see just how badly Runes clogged blocks:
Transaction fees collected by bitcoin miners tripled the previous all-time high the day after the halving, on April 20th, coming in at over $78,000,000.
Needless to say, bitcoin will not have a security budget problem once transaction fees overtake newly minted BTC in every block, and eventually after there is no new bitcoin left to be minted after ~2140.
Contributing hundreds of millions of dollars to miners over a two-day period is excellent, the issue is just a function of why. Is miner profitability being improved thanks to the network's chief function, or is it being improved because of spam?
Think about it this way: a local bakery can have its best revenue day ever if the circus comes to town, buys 20,000 croissants, and lights them all on fire. The bakery is more profitable than ever, but it isn't profitable while serving its chief function. People who want to use the bakery for its chief function, making food for people to buy and eat, are now out of luck because the bakery is at capacity.
This truncated event illustrates the need to accelerate the development of layer-2 scaling solutions for bitcoin if it is to effectively make the jump from its store of value monetization phase into its medium of exchange proliferation and use phase.
Miner profitability is doing just fine post-halving. Miner revenue is at $76/PH/day, down from the $182/PH/day spike from Runes, but higher than the average daily profitability during bitcoin's 4th halving epoch:
Here's the last chart I leave you with today. 9 out of the top 10 largest publicly-held bitcoin miners are up since the beginning of last year. Underperformance compared to bitcoin in the months before and after the halving is to be expected. Miners are in constant global competition to allocate capital to the Bitcoin network profitably. Paired with the shareholder duty of a public-traded company, we seriously have nothing to worry about with miners. They will be alright:
Final thought: onto epoch 5.
Take it easy,
Joe Consorti
Theya is the world's simplest Bitcoin self-custody solution. With our modular multi-sig vaults, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.