Bitcoin transaction fees big dump 56%, Miner revenue shrinkage risk intensifies

The on-chain trend of Bitcoin this year has been unusually calm, with the average block size shrinking and daily fees being less than half of January's. The total daily transaction fees have dropped from around 4.7 Bitcoins at the beginning of January to just above 2 Bitcoins this month, a 56% decrease since the beginning of the year. The fee to rewards ratio has slid from 1.35% in the first quarter to 0.78% over the past three months, indicating that the proportion of miner income coming from users continues to shrink.

The logic behind the fee crashing from 4.7 BTC to 2 BTC

(Source: CryptoQuant)

The total daily transaction fees have dropped from around 4.7 Bitcoins at the beginning of January to just over 2 Bitcoins this month, a decrease of 56% since the beginning of the year. This sharp decline marks a fundamental change in the usage patterns of the Bitcoin network. In 2024, the surge of Ordinals and Inscription has triggered a large amount of on-chain activity, with users rushing to inscribe data and create NFTs on the Bitcoin blockchain, driving fees to historic highs.

However, as we enter 2025, this wave of enthusiasm quickly fades. The novelty of Ordinals wears off, and most speculators exit the market, with on-chain activity returning to “normal” levels. All moving averages show the same trend, with the 30-day and 90-day moving averages trending downwards since March, only experiencing brief rebounds during sporadic trading activity. This persistent downward trendline indicates that the slump in on-chain activity is not a temporary phenomenon, but rather a new normal.

The decrease in transaction fees affects different participants in different ways. For traders, this is good news; a cheaper and more predictable settlement method shortens the confirmation time for exchanges, ETF issuers, and market makers, allowing for better management of cross-venue trading flows. Individual users can also experience faster trades and lower costs in settlement speed. In fact, the underlying Bitcoin is more like a low-latency settlement network rather than a congested auction network.

However, the same data also shows a structural change. For most of this year, the 30-day correlation between fees and prices has been negative. Historically, Bitcoin price increases have often been accompanied by an increase in trading pool activity, as a large influx of new users occurs. However, in this cycle, liquidity seems to have shifted elsewhere: to aggregation, batch processing, or off-chain transactions.

Bitcoin transaction fee fall key data

Total daily transaction fees: Decreased from 4.7 BTC to 2 BTC (fall of 56%)

Fee and Rewards Ratio: Decreased from 1.35% to 0.78%

Average Block Size: Decreased by 10% to about 1.53 MB

Miner transaction fee revenue: fell from an average of 576,000 USD to 410,000 USD

Memory Pool Status: Congestion has almost disappeared.

Cost and rewards ratio collapses to 0.78% Miner risk intensifies

(Source: CryptoQuant)

The cost and rewards ratio (a clear indicator of how much of miners' income comes from users rather than subsidies) has fallen from 1.35% in the first quarter to 0.78% over the past three months. This ratio is important because it reveals the source of Bitcoin's security funding. When users pay higher transaction fees, they are actually sharing the cost of maintaining the network. When transaction fees decrease, this burden shifts to the subsidizers: 3.125 Bitcoins generated per block.

Due to the fixed block rewards, miners rely more on the price of Bitcoin itself. Currently, the price of Bitcoin is $110,000, and the network is still profitable, but the correlation is evident: weak prices will directly lead to a decrease in miners' profit margins. This poses a significant risk for miners. Since the beginning of the year, fee revenue has continued to decline, falling from about $576,000 daily in the first quarter to about $410,000 now, indicating that the buffer against falling prices is gradually shrinking.

If the price of Bitcoin falls below $100,000, income may shrink significantly. This could make economic activities during the halving era more dependent on spot prices, especially when fee revenue remains very low. The halving event in April 2024 will cut the block reward from 6.25 BTC to 3.125 BTC, theoretically increasing the importance of fee revenue. However, the reality is quite the opposite; fee revenue has decreased instead of increased, highlighting the vulnerability of the current Bitcoin economic model.

In the long term, the security model design of Bitcoin anticipates that transaction fees will gradually replace block rewards as the main source of income for miners. However, the current fee-to-reward ratio of 0.78% indicates that this transition is still a long way off. If on-chain activity does not grow significantly, the long-term security of the Bitcoin network may face challenges, as future block rewards will continue to be halved, eventually approaching zero.

The evolution of market structure from on-chain activities to off-chain

This decoupling phenomenon indicates that the microstructure of the Bitcoin market has undergone an evolution. The trading activities once visible on-chain have now dispersed to exchanges and custodians, and even with the continuous growth in market capitalization, the blockchain itself has become calmer. The decline in on-chain transactions has also brought about other impacts. Since the first quarter, the average block size has decreased by about 10%, down to approximately 1.53 MB, while the memory pool congestion has almost completely disappeared, with only a few brief peaks occurring.

The main driving force behind this structural change is the launch of Bitcoin ETFs and the acceleration of institutional adoption. When investors buy Bitcoin through an ETF, the actual Bitcoin transfer occurs between the ETF issuer and the custodian, potentially executed via batch processing or over-the-counter transactions, leaving no individual transaction records on-chain. Moreover, trades within large exchanges also do not occur on-chain, with on-chain transactions only generated when users withdraw or deposit.

This evolution has significant implications for Bitcoin price predictions. Traditionally, on-chain activity is viewed as a leading indicator of market sentiment, with increased activity often signaling a price rise. However, when a large volume of transactions shifts off-chain, the predictive power of on-chain indicators diminishes. Investors need to combine off-chain data such as ETF fund flows and changes in exchange reserves to comprehensively assess market conditions.

Can the price of Bitcoin突破 110,000 USD?

However, the price trend of Bitcoin has not followed the same pattern. For several weeks, the price has been consolidating sideways, struggling to maintain above 110,000 USD. This combination of price stagnation and low on-chain activity reveals the delicate state of the current market. On one hand, the Bitcoin network operates with near precision and efficiency, providing an ideal environment for large-scale institutional use. On the other hand, the lack of new demand catalysts makes it difficult for the price to break through.

Currently, the Bitcoin network is stable, predictable, and has low usage costs. Even under high throughput conditions, the average transaction fee remains low, which means the attractiveness of Bitcoin as a settlement layer remains undiminished. If the market price continues to consolidate around $110,000, and there is no surge in transaction fees, this could signal that the Bitcoin price has reached a new equilibrium point.

Whether this situation can continue depends on market demand. If trading volume rebounds or retail funds flow in again, the average transaction fee may rise back to first quarter levels. But for now, the blockchain market is quite calm. The memory pool operates smoothly, block sizes are decreasing, the network is stable, but its prices (at least for now) are unusually active.