What is the reason for the fall in Bitcoin transaction fees?

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The average Bitcoin transaction fee amount has declined by around 26% over the past week. Here are some possible reasons behind the trend.

Why are Bitcoin transaction fees so low right now?

According to Arcane Research’s latest weekly report, the average transaction fee per day was around $ 966,000 last week, but has now fallen to just over $ 700,000.

This is a 26% drop in the past seven days alone. But, even before this drop, the fees had been pretty low for quite some time now.

There are several reasons for this trend. One of these may be the rapid growth of the Bitcoin Lightning network, where transactions take place off-chain.

However, the report suggests that other factors could be larger contributors to the low cost, such as decongestion of mempool.

When a transaction is made on the Bitcoin network, it waits for confirmation in the mempool. Since a BTC block has a fixed size of 1MB, a bloated mempool can mean that miners would prefer to handle the more lucrative transactions.

In these situations, users start paying higher fees so that their transactions don’t get stuck in the mempool. This leads to an overall increase in fees.

The average number of transactions has also dropped significantly in recent months. At the start of 2021, there were over 350,000 transactions on average per day, but now that value has fallen to just 270,000 to 280,000.

Related reading | Bitcoin bearish signal: whales now account for 91% of foreign exchange deposits

The increase in the use of Segwit transactions could be one of the main reasons for the drop in fees. This is a type of transaction where the signature is removed, which costs less fees.

Here is a graph that shows how the adoption of Segwit transactions has increased relative to Bitcoin fees:

The correlation between transaction fees and the use of Segwit | Source: Weekly Arcane Research Update – Week 46

As the chart above shows, while median transaction fees have fallen since May, Segwit usage has seen a sharp increase from 50% to over 80%,

Related reading | Puell Multiple says Bitcoin miners don’t want to sell at this level

The report also mentions that batch trades may be another downside. Since a single Bitcoin transaction can have multiple recipients, batch processing can reduce fees.

BTC price

As of this writing, the price of Bitcoin is floating around $ 56.6,000, down 6% over the past seven days. The chart below shows the trend in the value of the crypto over the past five days.

BTC price seems to continue to plunge | Source: BTCUSD on TradingView Featured Image from Unsplash.com, Charts from TradingView.com, Arcane Research

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