Bitcoin Fee Crash Could Lead to Faster Miner Selling, Analysts Say

Bitcoin (BTC) miners reduced their coin inventory before the reward halving took effect on April 19. The trend could soon resume as the blockchain has become cheaper to use, squeezing miners’ revenue.

"Daily average network fees spiked after the halving, offsetting some pain for bitcoin miners. However, fees have since come down as the initial rush of users to the Runes protocol cooled off," analysts at Kaiko said in a weekly note titled "Reality Bites for Miners."

"The recent decline in fees could lead to selling pressure from miners," analysts added.

Bitcoin's price already face downside risks from long-defunct cryptocurrency exchange Mt.Gox's impending $9 billion payout to its creditors, and a potential increase in selling pressure from miners may worsen the situation.

Bitcoin miners earn revenue from two sources: block rewards and transaction fees. Miners receive a fixed amount of BTC as a reward for adding new blocks to the blockchain, along with transaction fees for including transactions in the blocks they mine.

Last month's halving reduced the per-block coin emission to 3.125 BTC from 6.25 BTC, putting the onus of compensating the negative impact on miner profitability on transaction fees and bitcoin's price.

The mean transaction fee initially cooperated, surging from 0.0003 BTC to a six-year high of 0.00199 BTC immediately after halving, according to data tracked by Glassnode. The spike came as traders rushed to "etch" and mint tokens on top of the Bitcoin blockchain with the help of fungible token protocol Runes.

However, the sugar rush from Runes was short-lived and the mean fee quickly tanked levels seen before halving. As of Tuesday, the mean transaction fee was 0.000039 BTC.

Meanwhile, bitcoin's price has declined over 4% to $61,990 since halving, CoinDesk data show.

"The higher fees had alleviated some of the post-halving stress on bitcoin miners, but they are beginning to feel the pressure of the slashed miner rewards," Kaiko said. "The halving has typically been a selling event for Bitcoin miners as the process of creating new blocks incurs significant costs, forcing miners to sell to cover costs."

At press time, wallets associated with miners held 1.805 million BTC ($111.5 billion), according to Glassnode.

Markus Thielen, head of 10x Research, expects miners to liquidate roughly $5 billion of BTC in the coming months.

"Why would they keep inventory when the price is not going up," Thielen said, explaining his view.

Crypto exchange Deribit made a similar observation on X, discussing an option strategy called "bear call spread" to navigate a potential miner-led drawdown in bitcoin's price.

"Bitcoin forms lower highs and miners facing shrinking revenues and fees, are pressurized to sell their holdings. For traders looking to navigate this market, the Bear Call Spread strategy can be a suitable approach to consider," Deribit said.

A bear call strategy is a two-legged option strategy taken when the view on the market is moderately bearish.