Checking In On Ordinals, Fees, and Miners

Bitcoin Ordinals changed the game for Bitcoin. For the first time in a while, Bitcoin had something it had rarely had: blockspace demand. As readers know, Ordinals allows users to store data directly on Bitcoin. Enterprising developers and users have used this ability to store digital artifacts on chain, create a simple token standard, and theorize about Bitcoin as a DA layer. The market for these new tokens and digital artifacts has exploded to have a market valuation in the hundreds of millions. BRC-20s, in particular, have come to dominate Ordinals, with BRC-20 inscription transactions far outstripping any other kind. This unique ecosystem has created an unprecedented level of demand for Bitcoin blockspace.

Due to the particulars of Ordinal tech, users have been bidding ever higher transaction fees to record their Ordinal inscriptions on chain before others. This bidding has created upward pressure on Bitcoin’s transaction fees – making Bitcoin more expensive to use but a godsend to struggling miners. The fee increase was a potential catalyst for the recent performance of mining stocks like Hut 8, Marathon, and Riot. Of course, Ordinal and BRC-20 excitement has cooled, and blockspace demand has declined. At the height of the Ordinal craze, fees were extremely high – sometimes 600 sats per vByte. Although higher than before Ordinals burst onto the scene, fees have dropped to between 3-7 sats per vByte – but there are still many more transactions in the mempool than before Ordinals.

If you read our earlier reports, you know we highlighted that miners would be a big beneficiary of the new demand for block space. And that is what we have seen: for the first time in a while, the portion of miner revenue from Bitcoin fees was significantly higher – especially during the launch of BRC-20s. During the BRC-20 craze, fees were sometimes 20% – 40% of Bitcoin’s block rewards. The increase in fees created a healthy bump in mining revenue.

Mining stock has done well lately, partly due to the increase in Bitcoin price and partly because of the rise in revenue stemming from Ordinal’s inscriptions. An increase in Bitcoin fees and price means miners are making more money, which helps their stock performance. YTD, some mining stock, like MARA or RIOT, is up between 300% – 400%. Much of this performance was post-BRC-20 craze at the end of Q2, so I think some of the performance was investors’ pricing in increased mining revenue. However, as fees per vByte have fallen, miners can probably expect revenue to decline. And that is what I want to highlight: Mining stock has done exceptionally well, partly due to an increase in fees, and if the fees are declining, so too may the mining stock. Ordinals put pressure on Bitcoin’s fee floor, creating a minimum blockspace demand and pushing up the fees for normal transactions. If Ordinal inscription fees decline, so to will other fees, which reduces miners’ revenue from them.

I don’t think mining stock is free short – the links between mining stock and fees are tenuous, in my opinion. Investors could be pricing in a rate cut, renewed crypto enthusiasm, and many different factors. This post is more of a caution that a significant revenue stream for miners is declining and that those holding mining stock should pay attention to Bitcoin Ordinals and their effect on fees.

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