Bitcoin mining stocks rally as network congestion stirs hopes for higher fees ahead

Published Wed, May 10 20233:59 PM EDT

Bitcoin's price action has been relatively tame lately, but bitcoin-related stocks are on the rise this week as miners benefit from recent congestion on the network. That congestion was driven primarily by sudden activity in NFT-like assets, or "Ordinals," on the Bitcoin blockchain. As a result of the congestion, Binance over the weekend briefly paused user withdrawals twice, which helped push the price of bitcoin down 7% over two days. As that played out, however, the network experienced a record high of more than 465,000 transactions awaiting confirmation in Bitcoin's "mempool," a waiting area for pending transactions, Grayscale pointed out in a note this week. Transaction fees spiked to at least $40, compared with their normal fees of between $1 and $5. To better understand Ordinals, see our explainer: 'Ordinals' could signal the beginning of a new generation for Bitcoin. Here's what investors need to know The revenue of bitcoin miners spiked to a one-year high of $41.6 million on Monday, according to CryptoQuant. "The memory backlog of awaiting transactions has continued to grow," Greg Cipolaro, head of research at NYDIG, told CNBC Wednesday. "The transaction fees that are paid to miners have grown and that's healthy for the long-term viability of security of Bitcoin." On Wednesday, publicly traded bitcoin miners Riot Platform and Marathon Digital gained 6% and 9%, respectively. Hut 8 and Canaan rose about 2% each. "There's a whole host of public companies who have emerged in the mining space over the past two years," he added. "They are all beneficiaries from the growth and transaction fees." New use cases driving more activity and higher fees also eliminates a long-term existential risk question for bitcoin miners, said Cipolaro: how do they transition from a block reward into a fee-based reward? Miners are primarily responsible for validating transactions from the mempool and are incentivized to so by receiving a two-part financial reward. The first is the "block reward" – a fixed amount of newly minted bitcoins that gets cut 50% about every four years – and the other comes from transaction fees. Bitcoin miners have been underwater at multiple points over the past year as the price of the crypto assets tumbled throughout a downcast 2022 with stocks – making block reward worth less. In 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 .