Bitcoin continues to show relative weakness in terms of price and on-chain activity, with Ethereum miners’ transaction fee revenue hitting a one-year low

According to a new report from Glassnode, the Bitcoin market continues to show relative weakness in terms of price and on-chain activity. Ethereum miners’ transaction fee revenue hit a one-year low, with the average daily transaction fee revenue falling from more than 15,000 ETH/day in early May to just 1,900 ETH/day.

Overall on-chain activity for Bitcoin and Ethereum is very low, with demand for block space falling to its lowest levels since 2020.

At the same time, the Chinese mining market is undergoing a seismic shift as multiple regions impose bans on the industry. This report will explore the on-chain impact of changes in hash power and miner spending behavior.

Both Bitcoin and Ethereum experienced a significant slowdown in on-chain activity, with active addresses and total transfers falling back to levels seen in 2020 and early 2021. Bitcoin active addresses fell 24% from a peak of 1.16 million in March to early May.

For Ethereum, the decline in active addresses has been even more dramatic, falling 30% from a brief peak of around 676k. It is now down to 474k/day, last seen in Q1 2021.

The report reads that the decline in volume is even more dramatic for the dollar value settled on the network, with the dollar value of Bitcoin (adjusted for volatility) and Ethereum (ETH transfers) down 63% and 68%, respectively, from their recent highs set in May.

Bitcoin settles approximately $18.3 billion per day, while Ethereum settles $5 billion in ETH transfers per day, both with trading volumes comparable to the first quarter of 2021.

With network congestion almost completely cleared, transaction fees to prioritize inclusion in the next block have dropped significantly. Bitcoin transaction fees have fallen to just under 30 BTC/day (about $1.2 million), consistent with levels in late 2019 and early 2020. This currently accounts for about 4% of miners' revenue, while block subsidies account for the remaining 96%.

For Ethereum, daily transaction fee revenue has dropped from over 15,000 ETH/day in early May to just 1,900 ETH/day ($4.34 million). This suggests that around 10% of total miner revenue comes from transaction fees.

“We have to go back to June 2020, before the ‘DeFi summer,’ to see transaction fees at this level,” Glassnode wrote.

From a macro perspective, the balance of supply held by long (blue) and short (red) holders bears striking similarities to the 2017 macro peak. The chart below shows the relative supply held by each group, and whether they are profitable (dark) or losing money (light).

After reaching “Peak HODL” (maximum long-term supply), both cycles saw a macro distribution, with Bitcoin wealth transferred from long-term holders to short-term holders.

The report reads, “If we examine total spending behavior over the past year, we see that the share of tokens with shorter holding periods (< 1 year) continues to increase as a percentage of transaction flow. Over the past few months, we have seen young tokens account for more than 45% of total transaction volume.”

This metric suggests that the majority of current on-chain activity is due to buyers selling at a loss over the past six months.

In contrast, older coins (over 1 year old) have reduced spending, with a significant drop following the May sell-off. This shows that:

1) On-chain settlement demand is extremely low (generally bearish).

2) Long-term investors are not buying at these prices (neutral to bullish).

The report also suggests that the largest migration of Bitcoin hash power in history appears to be underway. After several provinces in China officially banned mining activities, many miners are shutting down or moving their hash power outside of China.

Over the past two weeks, the estimated average hash rate (7DMA) has dropped by about 16%, from about 155 EH/s to about 125 EH/s. Hash power has now returned to mid-2020 levels.

As the Chinese mining industry begins to grapple with the logistical challenges of relocating, relocating, or selling hardware and facilities, some may liquidate some of their accumulated Bitcoin wealth. These token sales may represent a way for miners to hedge risk, obtain funds to facilitate and fund logistics, or, for some miners, exit the industry entirely.

During the May sell-off and the past two weeks, Glassnode observed a net inflow of 3,000 to 3,500 BTC. However, buyers absorbed almost all of the inflow in just a few weeks. Overall, Bitcoin holdings on OTC platforms have remained relatively flat since April.