Bitcoin miners’ earnings from fees are rising, suggesting the beginning of the Major Bull Run

Bitcoin’s (BTC) 60% year-to-date surge may just be the first milestone in its rise, as miner revenue from transaction fees increases.

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

The positive flip suggests that miners’ earnings from transaction fees are deviating higher from their two-year average, as a sign of increased demand for the network. Historically, a return to the high tax regime has coincided with the beginning of major bull runs.

“Boosted by renewed demand from Ordinals and Inscriptions, the 2-year Z-score of miner revenue from fees has turned positive,” Glassnode lead analyst James Check said in a weekly market update.

“Increased fee pressure is a common precursor to more constructive markets, coinciding with new waves of adoption, expressed via increasing demand for block space,” Check added.

Z-score measures the number of standard deviations from the two-year average fee income. 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 the transaction fees.

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

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

The seven-day average of the daily number of transactions 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 earnings increase to $22.6 million per day. This week, miner earnings rose to the highest level since June 2022, convincingly breaking above the annual average,” Check said, adding to the fact that this is typically observed near “transition points towards a more constructive market.”