Dear Bitcoiners,
We got the Halving, but no supply crunch! In last week's video, I explained how the Halving effect is not instant but happens gradually over the next four years. However, this Halving, we experienced the opposite of a typical Halving effect.
While the Bitcoin block reward halved from 6.25 to 3.125 BTC, miners surprisingly earned more BTC due to a new protocol launched during the Bitcoin Halving for creating tokens on Bitcoin, called "Runes."
The protocol spiked demand for Bitcoin block space due to its first-come-first-served naming system for tokens, which has led to a significant increase in transaction fees. The protocol is part of a broader exploration of Bitcoin's utility beyond monetary transactions and is therefore widely criticized.
Live chart available in both USD and BTC terms for paid subscribers. I recommend checking out the revenue in BTC as the block reward gets projected into the future showcasing the Halving shock.
No Halving Supply Shock (so far)
The chart above shows the surge in transaction fees caused by the Runes protocol's first-come-first-serve token naming convention, driving fees to new heights.
The chart's fee history highlights the first fee spike occurring soon after the scaling wars during the 2017 bull market. While this spike occurred soon after the Segregated Witness (SegWit) upgrade, which paved the way for scaling solutions like the Lightning Network (LN), the 2017 market saw little to no adoption of these enhancements. The next fee spike, although lower than in 2017, occurred during the 2021 bull market, where we already had significant LN adoption.
Then, ordinals and inscriptions came along, assigning a unique but arbitrary numbering to satoshis, turning them into "digital collectibles" and allowing arbitrary data (e.g., JPEGs) into transactions. This was followed by a fee spike due to gained traction for the BRC-20 token standard, which uses the ordinals protocol to create and manage fungible tokens.
Lastly, the recent Halving fee spike was caused by Runes, an improved and more efficient protocol than the BRC-20 standard. It’s important to highlight that the last three significant fee spikes were all due to demand for limited block space and non-monetary use, the reason why there is so much backlash from the Bitcoin maximalist community.
While a Halving supply crunch always needed time to materialize, this Halving, the fee spike caused miners to earn more BTC instead of less, resulting in, at least temporarily, the absence of a supply shock. We’re only one week into the Halving, and the hype around the tokens will likely fade. However, the demand for the ETFs has also faded into this drawdown!
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With Spot Bitcoin ETF demand at reduced levels and no Halving effect so far, will we see a continuation or intermission?
The following chart will reveal significant insights into how we will likely move forward.