Bitcoin Miners' Revenue From Fees Rises Suggesting Onset of Major Bull Run

The two-year "Z-score" for miner revenue from fees has turned positive after a long time, signaling new waves of adoption.

AccessTimeIconMar 23, 2023 at 10:48 a.m. UTC
Updated Mar 23, 2023 at 2:09 p.m. UTC

Bitcoin's (BTC) 60% year-to-date surge may be only the first milestone in its upward journey, as miner revenues from transaction fees are rising.

The two-year "Z-score" for miner revenue from fees, an indicator used to identify periods of high and low transaction fees, has turned positive for the first time since mid-2021, according to data source Glassnode.

The positive flip suggests miners' revenue from transaction fees is deviating higher from the two-year mean in a sign of increased network demand. Historically, a return of high fees has coincided with the beginning of major bull runs.

"Bolstered by a new demand from Ordinals and Inscriptions, the 2yr Z-Score for miner revenue from fees has turned positive," Glassnode's lead analyst, James Check, said in a weekly market update.

"Elevated fee pressure is a common precursor to more constructive markets, coincident with new waves of adoption, expressed via increasing demand for blockspace," Check added.

The indicator has turned positive, indicating a return of high fees. (Glassnode)
The indicator has turned positive, indicating a return of high fees. (Glassnode)

The Z-score measures the number of standard deviations from the two-year mean fee revenue. The Z-score is usually positive and rising during bull runs and negative during bear runs.

Bitcoin miners solve complex algorithmic puzzles to verify and add new transactions to the blockchain or distributed ledger in return for rewards paid in BTC. In addition, miners also receive a portion of transaction fees.

Fees are a function of transaction size and network volumes (how congested the network is). Transactions are processed in blocks, storing up to 1 megabyte of data. Hence, a sudden spike in activity often leads to network congestion – transactions waiting to get verified. In such situations, miners target transactions with higher fees first. In other words, the more a user offers in fees, the faster his transaction is likely to be verified.

The network has seen brisk activity since the launch in January of the Ordinals protocol, which allows users to inscribe references to digital art into small transactions on the Bitcoin blockchain.

The seven-day average of the daily transaction count on the Bitcoin network has increased by 28% this year, reaching a two-year high of over 333,000.

"Miners are of course key beneficiaries of this influx, seeing their total revenue spike up to $22.6M/day. This week, miner revenues have lifted to the highest level since June 2022, breaking convincingly above the yearly average," Check said, adding that this is typically observed near "transition points towards a more constructive market."


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.