Clogged Network and Surging Fees Thwart Bitcoin’s Charge Towards $30K Ahead of CPI Print

Bitcoin (BTC) price traced a sharp decline coming off the weekend and for the better part of Monday as traders reacted to Binance’s late Sunday announcement of temporarily suspending Bitcoin withdrawals on its platform. The second halt which lasted about two hours followed a previous one eight hours earlier in the afternoon hours. The disruption to the exchange’s normal operations stirred panic among holders sending crypto prices down even after operations resumed. This accelerated sell-off in the crypto markets saw the BTC/USD pair seal the week with negative returns of 2.66% as per Coinglass data.

Binance pauses and restarts Bitcoin withdrawals twice on Sunday

In a series of updates, the exchange support team provided justification for Sunday’s suspension decision, ascribing it to congestion on the Bitcoin network. Initial reports of two huge BTC outflows of 117K and 40K BTC on Binance, which turned out to be internal transactions by the exchange to a new address, had observers thinking something was up. Though the exchange resumed normal services a few hours before Monday, Bitcoin continued seeking lower grounds below $28,000 and was spotted at $27,736 at the time of writing.

BTC/USD chart May

Binance CEO Changpeng Zhao addressed the surfacing ‘FUD’ concerns on Twitter reiterating that the disruption was due to congestion and fees-related hitches. Binance also clarified that the early week muddle was because “set fees did not anticipate the recent surge in [Bitcoin] network gas fees.” To resolve the issue, the exchange adjusted its fees for the pending transactions so they could be picked up by miner, allowing resumption of withdrawals.

Ordinal inscriptions surpass 5 million mark as BRC- 20 standard chokes network

The breakout of the Ordinal protocol in February caught the interest of many crypto enthusiasts as reflected in the prevailing hype around it and other affiliated projects. The protocol allows individuals to directly inscribe arbitrary content like text, images and video on the Bitcoin blockchain. These NFT-like creations have taken off exponentially from 684,418 inscriptions on the first day of April to 3 million on May 1. The total number of these inscriptions has since eclipsed 5 million according to Dune Analytics’ Ordinals dashboard.

Ordinals popularity

In March, a pseudonymous developer Domo experimenting on fungibility on bitcoin with ordinals floated an idea of a fungible token standard on top of the protocol called BRC-20 – similar to Ethereum’s’ token standard ERC-20. Domo’s conceptualization marked the beginning of the ‘BRC-20’ frenzy as several tokens created on Bitcoin like Ordi made their debut. The market capital of BRC-20 tokens stood at $635 million at writing – a significant drop from over $900 million on Monday, according to the brc-20.io dashboard.

The swell in trading activity of these newly created assets in recent weeks has spurred an increase in transactions on the Bitcoin network which has in turn led to a sharp hike in network fees. Glassnode observed earlier this week that the average fee paid per block rose to 2.9 BTC, coming close to the figures recorded in the previous past bull peak. On the flip side, the hype around these new tokens has pushed the network to its operational limits with pending transactions surpassing 450,000 earlier this week. This volume stood at 403,279 writing per data from mempool space explorer tool.

Transaction fees have also been spotted soaring above mining reward for first time in more than five years. Mining pools such as Luxor Technologies and AntPool mined blocks where fees exceeded Bitcoin’s block subsidy on Monday. This means some bitcoin (BTC) miners earn more to process transactions on the blockchain than the rewarded for creating new bitcoin – a welcomed shift to some. Miners currently earn a subsidy of 6.25 BTC and with the forthcoming halving, this reward is set to decrease. In view of this, concerns of the long-term profitability of mining have already been raised since blockchain is wired to slash rewards until all bitcoins have been mined. Some industry experts view the swell in profits from processing transactions as a positive development.

To learn more about Bitcoin, check out our Investing in Bitcoin guide.

Congested channels trigger a surge in fees

Once a user initiates a Bitcoin transfer, the transaction is broadcast to the network’s memory pool which is basically a database of transactions which every node keeps are held before they are confirmed. Confirmation involves removing the transaction from the mempool and inserting them into Bitcoin blocks, usually done by miners who are motivated chiefly by profits. The mempool essentially acts as a waiting room or queue for unconfirmed or pending transactions on computers running the Bitcoin program.

Pool ranking. Source: mempool.space

Transactions with higher fees attached appeal to miners first and, as such, are typically confirmed ahead of those with relatively lower. Larger mempools mostly indicate high traffic on the network which in turn means users wait longer for their transaction to be confirmed and are also likely to spend higher transaction fees. Bitcoin transaction fees reached their highest levels since June 2021 on Friday, averaging $9.62 per transaction.  The figure trended lower on Saturday and Sunday before spiking sharply to $19.21 on Monday. BitInfoCharts data shows the average Bitcoin transaction fee peaked at $31.14 on Tuesday.

The network value to transaction (NVT) ratio further highlights the thronged state of the network. The NVT metric indicator which depicts the relationship between value moved on-chain and the asset’s total market capital is hovering around its highest level in four years per Glassnode data.

These yet-to-subside pains on the Bitcoin network have pushed users and exchange platforms to consider alternatives. Binance, on its end, said it was working on integrating Bitcoin lightning network withdrawals on its platform to help avoid similar occurrences during future high-demand periods.

Lightning Network capacity

The Lightning Network (LN) operates on top of the Bitcoin blockchain as layer 2 scaling solution with generally lower fees but has struggled to gain adoption. In recent months though, positive developments around the network have helped it see interest even from other crypto communities outside Bitcoin.

To learn more, check out our Lightning Network guide.

Bitcoin price action and Wednesday CPI data

Bitcoin printed a massive red candle ahead of the weekly close late Sunday followed a series of more, albeit spaced, candles reaching an intraday low of $27,310 on Monday. Notably, the unanticipated plunge in the crypto prices earlier this week saw Bitcoin liquidations top $50 million on Monday. Coinglass data shows more than $220 million of trader orders were forcibly closed on Monday with a lesser volume of $51 million being liquidated in the last 24 hours.

Binance’s unprecedented congestion drama has brought Bitcoin price down this week even as macroeconomic events line up starting with the release of the May Consumer Price Index (CPI) data on Wednesday. Last week, the Federal Reserve announced a 25 basis points (bps) adjustment to interest rates – a third consecutive. April’s CPI print is due tomorrow and commentators are keen to pick up clear signs indicating a cooling inflation to a point of easing economic policy. Producer Price Index numbers are also slated for release this week in addition to the last of Q1 earnings reports from major corporations.

Bitcoin fork tokens emerge new winners

Bitcoin network’s troubles worked out in favor of some layer two tokens like Stacks (STX) which racked double digit gains on Monday against falling prices in the rest of the market. For context, Ethereum price fell roughly 3% on Monday to a low of $1,832 while Litecoin (LTC) shed more, falling below $78.

Bitcoin forks tokens, BSV and BCH, gain as Bitcoin dips

The native tokens of Bitcoin forks have registered impressive gains today. Bitcoin SV (BSV) leads among top gainers this week, up 42% in the last 24 hours to $42.60 where it was trading at press. Bitcoin Cash (BCH) price has, on the other hand, moved up 9.65% in the same period to $122.

To learn more, check out our Bitcoin vs Bitcoin Cash guide.

Ordinals set to come to Binance NFT marketplace before end of May

In a statement on Tuesday, Binance revealed it plans to allow trading of Bitcoin NFTs directly using already-existing wallets on its dedicated NFT platform. The development, which is expected later this month, will expand the exchange’s multichain ecosystem which already features BNB Chain, Ethereum and Polygon.

“Bitcoin is the OG of crypto […] We believe things are just getting started here and can’t wait to see what the future holds in this space,” Binance Head of Product Mayur Kamat said.

Binance’s initiative comes a few months after Magic Eden unveiled a fully audited marketplace for Ordinals on its cross-chain NFT platform in March. Last month, OKX separately said it would bring Bitcoin ordinals to its marketplace with plans for a provision to mint being in consideration for the future. Its integration, however, differs from the rest as it simplifies the experience by eliminating the need for users to create a taproot-compatible Bitcoin wallet for purchasing Ordinals.