Bitcoin miner income on the decline despite rising network fees – why?

• Bitcoin’s network fees have increased significantly since the launch of Inscriptions and Ordinals in February.
• However, miners’ income from the same has reduced.

The income of Bitcoin [BTC] miners has remained relatively low despite the spike in total network fees and the proportion of miner income from those fees witnessed in the past few months, Glassnode found in a new report.

According to the on-chain data provider, the activity of Inscriptions and Ordinals on the Bitcoin network resulted in an uptick in demand for blockspace. Since their launch in February, “this elevated demand has been sustained,” Glassnode found.

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As users explored the newly discovered emergence of non-fungible tokens (NFTs) in the form of texts and images on the chain, user activity on the Bitcoin network climbed, causing the demand for blockspace to grow rapidly. With transactions filling up the Bitcoin mempool, network fees increased. 

Source: Glassnode

According to Glassnode, “total fees have increased by 216% from ~12 BTC/day to 38 BTC/day, and the proportion of the miner income from fees has increased from 1% to 4%.”

However, while these increments have been significant, the data provider found that they remained small “in an absolute and historical context.”

Too many miners, not enough fees

Following the launch of Inscriptions and Ordinals in February and the resulting growth in demand for blockspace on the Bitcoin network, the market saw a renewed interest in mining activity on the network. The launch of newer ASIC rigs also contributed to an increase in new demand for mining on the network

Moreso, at the time, BTC’s price embarked on an upward trajectory, and its price had grown by over 40% since 1 January, incentivizing many more to join the mining community on the chain. 

As a result of this, the amount of hashrate competing for mining rewards increased. According to Glassnode, this has gone up by 50% since February.

Source: Glassnode

While network fees and miners’ share of the same has seen a corresponding increase since February, the reward earned per Exahash has been driven to new all-time lows due to the surge in the number of miners all competing for the same rewards. 

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According to Glassnode, “miners will now earn just 2.26 BTC (~$60k) per Exahash active on the network.”

Source: Glassnode

The report found further that miners on the Bitcoin network “may be on the brink of becoming unprofitable.” This is because the average miner acquisition cost sat at a 10% premium decline to the current spot price.