Bitcoin mining stocks rise as network congestion raises hopes of higher fees ahead
by James · May 10, 2023
Bitcoin’s price action has been relatively tame of late, but bitcoin-related stocks are on the rise this week as miners take advantage of the latest congestion on the network. That congestion was primarily driven by sudden activity in NFT-like assets, or “Ordinals,” on the Bitcoin blockchain. As a result of the congestion, over the weekend Binance briefly halted user withdrawals twice, helping to push the price of bitcoin down 7% over two days. As it played out, the network experienced a record high of more than 465,000 transactions awaiting confirmation in Bitcoin’s “mempool,” a holding area for pending transactions, Grayscale pointed out in a note this week. Transaction fees increased to at least $40, compared to their normal fees of between $1 and $5. To better understand Ordinals, see our explanation: ‘Ordinals’ could signal the beginning of a new generation for Bitcoin. Here’s what investors need to know. Earnings for bitcoin miners rose to a one-year high of $41.6 million on Monday, according to CryptoQuant. “The memory backlog of pending transactions has continued to grow,” Greg Cipolaro, head of research at NYDIG, told CNBC on Wednesday. “The transaction fees paid to miners have grown, and that is healthy for the long-term viability of the security of Bitcoin.” On Wednesday, publicly traded bitcoin miners Riot Platform and Marathon Digital rose 6% and 9%, respectively. Cabin 8 and Canaan rose about 2% each. “There is a whole host of public companies that have emerged in the mining space in the last two years,” he added. “They all benefit from the growth and the transaction fees.” New use cases that drive more activity and higher fees also eliminate a long-term existential risk question for bitcoin miners, Cipolaro said: how do they transition from a block reward to a fee-based reward? Miners are primarily responsible for validating transactions from the mempool and are incentivized to do so by receiving a two-part financial reward. The first is the “block reward” – a fixed amount of newly minted bitcoins that is cut by 50% roughly every four years – and the second comes from transaction fees. Bitcoin miners have been under water at several points over the past year as the price of the crypto asset fell through a bearish 2022 with stocks – making the block reward less valuable. Over the past few days, and for the first time in Bitcoin’s “modern history”, the value of the transaction fee in some blocks was greater than the block reward.
