WU BTC Transaction fees to mining reward normalized ratio

Authors: Vincent Duchaine and Jennifer Kwiatkowski

Refresh rate: daily

Proprietary Wealth Umbrella Trading View Indicator name:

- ☂️ WU BTC Transaction Fees on Mining Reward

Miner revenue comes from two different sources: one is the revenue from processing transactions and the other comes from the mining reward. During a bull market, there are usually a lot of transactions happening on the network, leading to a massive increase of processing fees. Although this high activity usually leads to an increase in the price of Bitcoin, the mining reward in USD$ is always outgrown by the increase in the transaction fee.

This indicator computes a normalized and filtered ratio of the transaction fees to mining reward paid in USD. As we can see in the next graph, the value of this ratio is usually very close to 1 between bull cycles but will start to rise when Bitcoin begins to see more activity.

The rising of the Transaction fees to mining reward normalized ratio helps confirming the start of a bull market

This is not an indicator for a cycle top since the maximum peak of this indicator for each bull run doesn’t always coincide with the market top, but it allows us to confirm when the bull market starts.

Another interesting thing is that it can also tell us when a current run is no longer being driven by an overheated level of transactions. Indeed, not all market tops are driven by the same mechanism. In December 2017, Bitcoin was finally becoming a star in the eyes of the general population and so that market top was characterized by an “euphoria phase” of adoption. This can also be seen on the next graph that shows the number of user addresses (the blue line) that appeared for the first time in a bitcoin transaction.

In such circumstances, the number of new addresses was continuously increasing up until when the bubble finally burst and we saw both the new addresses and price (in orange) drop. During this event, the ratio of transaction fee on the mining reward also rose constantly, making a similar top. However, in the 2020-2021 bull market, the actual “new adoption” top was the one in January 2021 when Bitcoin reached 40K$. The rest of the bull market, including the last peak at an all time high in November 2021, happened due to a limited supply and a HODL mentality. If we look at the transaction fee over mining reward we can clearly see that the network activity was peaking in January 2021 and then continuously losing steam starting in April 2021. This shows that the last phase of the run was meant to fail.

Comparaison of the transaction fee over mining reward fluctuations between two different bull market period

(P4 2022)