Sending bitcoins is getting very expensive, as the latest development has shown that the transaction fee now costs a whopping $13.41. In the last 12 days, the asset’s price rallied from $11,200 to $13,800, the average fees in Bitcoin have appreciated by more than 570%.
Overall, the figures for transaction fees of Bitcoin [BTC] have now soared by an astonishing 3573% from a mere $0.365 recorded at the beginning of the year.
Reasons for a Spike in Bitcoin Transaction Fee
A rise in transaction figures could be a sign of increasing congestion on the Bitcoin network as the price surged above $13,600. Network congestion is a normal affair, especially during price rallies. Notably, the number of unconfirmed transaction count has reached early 2018-levels.
An increase in traffic in the networks causes delays and a backlog of transactions. This is primarily because demand outpaces supply, and this is when the network miners increase their revenue as they prioritize transactions with higher fees, thus forcing users to offer higher fees in a bid to avoid long waiting times. Can this be a problem? Most likely not.
According to BitInfoCharts, there are no irregular spikes with respect to the number of Bitcoin transactions. Additionally, Bitcoin’s congestion problem dates back to the pre-Segwit days and even though this issue is currently haunting the network, the second-layer solution has pretty much solved it single-handedly. It is highly unlikely for congestion to reach levels last seen before the implementation of SegWit.
Bitcoin Hash rate Takes A Hit
The sudden drop in Bitcoin’s hash rate could be another important factor that has prompted a high transaction fee. It is important to note that mining cryptocurrency in China is a profitable business due to cheap hydroelectricity. However, there’s a catch. Soon after the rainy season, mining profits take a plunge thus adversely affecting Bitcoin’s hash rate and the latest case of the slump was due to this reason.
Due to the recent hashrate drop, Bitcoin nodes running the default 300MB mempool size are hitting their cap and have instituted dynamic minimum fee rates for relaying. Long story short, if you broadcast a 1 sat/vb transaction it may not get relayed. https://t.co/EVnOQX9T9M pic.twitter.com/WjIf14wEuL
— Jameson Lopp (@lopp) October 28, 2020
The hash rate scenario is very likely to improve in the coming days ahead when the next difficulty adjustment will be set. Additionally, the implication of a high transaction fee would not be a hindrance to Bitcoin’s price as many anticipated the current phase to be the beginning of a bull run, in which case, the fees are more likely to get higher.
Bullish On-Chain Bitcoin Metrics
Bitcoin has come a long way since its whitepaper was laid out for the first time in the year 2008. Thanks to the wild streak in terms of its price, Bitcoin has once again recaptured the imagination of traders thus pushing DeFi to take a backseat. One of the major drivers for the ongoing rally can be attributed to the fact that the crypto market has seen an uptick in institutional investment as announcements of large purchases by more firms have flipped many on-chain metrics bullish.
Further reinstating a bullish case for the coin was the Bitcoin Hodler figures. According to Glassnode, the number of addresses holding more than 1000 Bitcoins was on a steady rise which was indicative of a consistent accumulation trend by the holders. In addition to that, the addresses holding more than 10,000 Bitcoins have also surged substantially over the past month.