Fee revenue surpasses block subsidy. The 2024 halving made transaction fees the dominant miner incentive, fundamentally altering Bitcoin's security model and user economics.
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Bitcoin Fee Markets During Bull Runs
An analysis of how Ordinals, Runes, and the rise of Bitcoin L2s are fundamentally altering fee market dynamics, creating both a crisis and a catalyst for the next evolution of the Bitcoin ecosystem.
introduction
THE DATA
Introduction: The New Fee Reality
Bitcoin's fee market is no longer a side effect; it is the primary economic engine during bull runs.
Demand is protocol-driven, not human. Inscriptions via Ordinals and Runes create sustained, inelastic demand for block space, decoupling fees from simple payment volume.
High fees are a structural feature. Unlike Ethereum's fee-burning EIP-1559, Bitcoin lacks a native fee suppression mechanism, making expensive blocks the new equilibrium during congestion.
Evidence: In April 2024, fees constituted over 75% of total miner revenue for multiple days, a regime previously seen only briefly in 2017 and 2021.
market-context
THE DEMAND SHOCK
The Perfect Storm: Data, Memes, and Scarcity
Bitcoin's fee market is structurally broken for bull runs, creating a predictable crisis of demand that outpaces its supply.
Inscription-driven demand creates a permanent fee floor. Protocols like Ordinals and Runes transform block space into a digital asset marketplace, generating non-negotiable fee pressure that competes directly with financial transactions.
Meme coin mania acts as a volatility amplifier. The launch of tokens like $DOG on the Runes protocol demonstrates how speculative fervor creates sudden, massive transaction spikes that saturate the mempool for days.
Fixed block subsidy decay guarantees scarcity. The halving mechanically reduces the block reward, forcing the network to rely more on fees for security long before it can handle the load.
Evidence: The April 2024 halving saw fees spike to over $120 while the new Runes protocol immediately consumed over 70% of all block space, showcasing the new demand paradigm.
key-trends
BITCOIN FEE DYNAMICS
Three Irreversible Trends Reshaping the Market
Bitcoin's fee market is undergoing a structural shift, moving from a simple block space auction to a complex ecosystem of competing demand.
01
The Problem: Inscription Spam Clogs the Mempool
Ordinals and BRC-20 tokens create non-monetary demand that is price-insensitive, crowding out regular transactions.\n- Fee spikes to $50+ during minting frenzies.\n- Creates a two-tiered market where L1 is for collectors, L2 is for payments.\n- Exposes the inelastic block supply of Bitcoin's 10-minute intervals.
>80%
Fee Share
$50+
Peak Fees
02
The Solution: L2s as the New Settlement Battleground
Scaling solutions like Lightning Network and emerging Bitcoin L2s (e.g., Stacks, Merlin) are becoming the primary liquidity venues.\n- Lightning handles ~$100M+ in capacity for instant micropayments.\n- Rollup-like L2s enable DeFi, creating fee competition with Ethereum's ecosystem.\n- Shifts economic weight from base layer fees to L2 sequencer revenue.
~$100M
LN Capacity
10k+ TPS
Aggregate Scale
03
The Meta-Solution: MEV Extraction Comes to Bitcoin
With programmability via Covenants and OP_CAT proposals, Bitcoin will develop its own Maximal Extractable Value landscape.\n- Enables trust-minimized bridges and DEX arbitrage on L2s.\n- Block builders (e.g., ViaBTC, Foundry) will optimize for fee + MEV revenue.\n- Creates a professionalized fee market akin to Ethereum post-EIP-1559.
New
Revenue Stream
>Ethereum
Security Budget
BITCOIN LAYER 1
Fee Market Metrics: Bull Run vs. New Paradigm
Quantitative comparison of Bitcoin's native fee market dynamics during a speculative bull run versus the emerging paradigm driven by ordinal inscriptions and layer-2 activity.
| Metric / Driver | Classic Bull Run (e.g., 2021) | New Paradigm (Post-Ordinals) | Impact on User |
|---|---|---|---|
Primary Demand Driver | Speculative TX Volume | Ordinal Inscriptions & L2 Settlements | Shift from pure payments to data/asset settlement |
Avg. Fee per Block (High) | $50,000 - $100,000+ | $150,000 - $300,000+ | Block space value increased 3-5x at peaks |
Fee Spike Duration | Days to Weeks | Persistent Months-Long Elevated Base | Predictability degrades; 'cheap' times vanish |
Dominant TX Type by Fee Revenue | P2PKH/P2WPKH (Payments) | Taproot (Inscriptions/Data) | Miners economically incentivized to prioritize data blobs |
MemPool Clear Time (from 100k+ TX) | 24 - 72 hours |
| User experience severely degraded for non-time-sensitive TX |
Fee Market Predictability | Cyclical with BTC price | Decoupled; driven by NFT/L2 meta | Harder for wallets to estimate accurate fees |
Satoshi per vByte (High) | 500 - 1,000 sats/vB | 1,000 - 2,500+ sats/vB | Cost for a standard TX can exceed $50 |
Miners vs. Users Dynamic | Users compete with users | Users compete with protocols & capital | Retail gets priced out by automated, deep-pocketed systems |
deep-dive
THE BITCOIN FEE ESCAPE HATCH
L2s: The Pressure Valve and New Frontier
Bitcoin L2s are not just scaling solutions; they are the only viable economic model for absorbing bull run demand without pricing out users.
Fee markets are inelastic. Bitcoin's base layer fee spikes during congestion are a feature, not a bug, designed to secure the network. This creates a hard ceiling for user activity, making simple payments and DeFi interactions economically unviable during a bull run.
L2s monetize congestion. Networks like Stacks (for smart contracts) and Liquid Network (for fast settlements) thrive when mainnet fees are high. They offer a cheaper execution layer, capturing value from users priced out of L1. Their economic model is directly tied to Bitcoin's fee pressure.
The frontier is programmability. The real unlock is moving complex state, not just value. Protocols building on BitVM or using client-side validation (like RGB) enable trust-minimized DeFi on Bitcoin. This shifts the scaling debate from throughput to expressive power.
Evidence: During the 2024 Q1 bull run, Bitcoin's average transaction fee peaked above $40, while Stacks transaction volume increased by over 300%. This demonstrates the direct demand spillover from an expensive L1 to a programmable L2.
protocol-spotlight
BITCOIN LAYER 2 & INFRASTRUCTURE
Architectural Responses: Who's Building for the Fee Era
As Bitcoin's base layer becomes a high-value settlement rail, a new stack is emerging to abstract away fee volatility and unlock new utility.
01
The Problem: Congestion is a UX Killer
During bull runs, simple transfers can cost $50+ and take hours to confirm. This destroys usability for DeFi, gaming, and everyday transactions, capping Bitcoin's utility to a pure store of value.
- Unpredictable Costs: Users cannot budget for simple actions.
- Time-Sensitive Failure: Payments for goods/services become unreliable.
- Protocol Spam: Inscriptions and BRC-20s compete with high-value transfers.
$50+
Peak Tx Cost
Hours
Confirmation Time
02
The Solution: Sovereign Rollups (e.g., Rollkit, Citrea)
Move execution and state updates off-chain while using Bitcoin solely for data availability and settlement. This inherits Bitcoin's security while enabling ~$0.01 transactions and EVM/SVM compatibility.
- Capital Efficiency: Batch 1000s of txns into a single Bitcoin block.
- Programmability: Enables smart contracts and DeFi on Bitcoin.
- Sovereignty: Can fork/upgrade without Bitcoin consensus changes.
~$0.01
Tx Cost
1000x
Throughput Gain
03
The Solution: Client-Side Validation (e.g., RGB, Lightning)
Keep all transaction logic and data off-chain between participants. Bitcoin's blockchain acts as a court of last resort for disputes, minimizing on-chain footprint. This is the architecture for scalable, private, and complex state.
- Privacy: Transaction graphs are not publicly visible on-chain.
- Scalability: Throughput is limited only by user hardware/bandwidth.
- Asset Issuance: Enables scalable, confidential tokens (RGB).
Off-Chain
Data & Logic
Instant
Settlement Finality
04
The Solution: Optimistic Bridges & Liquidity Networks
Protocols like Stacks (sBTC), Babylon, and Liquid Network create two-way pegs to move BTC into faster environments. They use multi-sig federations or staking-based cryptoeconomics to secure the wrapped asset.
- Capital Unlock: $1T+ of idle BTC becomes usable in DeFi.
- Speed: Transactions settle in seconds on the sidechain/L2.
- Yield Generation: Enables Bitcoin-native lending and staking.
$1T+
Addressable Capital
Seconds
Withdrawal Time
05
The Enabler: Modular Data Availability (e.g., Nubit, Avail)
Decouple data publishing from Bitcoin's limited block space. These layers provide high-throughput, cheap DA specifically for Bitcoin L2s, reducing their settlement cost and latency back to the base chain.
- Cost Reduction: Cuts the largest cost component for sovereign rollups.
- Throughput: Enables ~100k TPS of data availability for L2s.
- Interoperability: A shared DA layer can connect multiple Bitcoin L2s.
~100k TPS
DA Throughput
-90%
L2 Cost
06
The Meta-Solution: Intent-Based Abstraction
Users specify what they want (e.g., "swap X for Y"), not how to do it. A solver network, inspired by UniswapX and CowSwap, finds the optimal path across L2s, sidechains, and the base layer, abstracting away fee market complexity.
- Optimal Execution: Routes across cheapest/fastest available venue.
- Gasless UX: Users don't need to hold native gas tokens.
- Market Efficiency: Solver competition improves price discovery.
Gasless
User Experience
Multi-Chain
Liquidity Access
future-outlook
THE FEE SPIRAL
The 2025 Outlook: Stratified Markets & Miner Economics
Bitcoin's block space market will stratify into distinct fee tiers, fundamentally altering miner incentives and network security.
Fee stratification is inevitable. High-value DeFi and NFT settlements on layers like Stacks and Rootstock will bid for priority, creating a premium block space market separate from standard peer-to-peer transfers.
Miner revenue flips to fees. Post-halving, the security budget depends on transaction fees. Stratified markets ensure fee revenue scales with on-chain economic activity, not just speculative demand.
Ordinals and Runes are the blueprint. The 2023-24 inscriptions craze demonstrated Bitcoin's latent demand for non-monetary block space, prefiguring a permanent, high-fee application layer.
Evidence: During the Q1 2024 peak, Ordinals fees constituted over 30% of total miner revenue, proving a viable fee market exists independent of simple payments.
takeaways
BITCOIN FEE MARKET DYNAMICS
TL;DR for Builders and Investors
Bitcoin's base layer fee spikes during bull runs create a multi-billion dollar opportunity for scaling solutions and adjacent protocols.
01
The Problem: Congestion Kills UX and Economics
During peak demand, fees on Bitcoin L1 can exceed $50 per transaction, making small payments and DeFi interactions economically unviable. This creates a hard ceiling for adoption.
- User Churn: Retail users priced out, limiting TAM.
- Protocol Inefficiency: High fees cannibalize yield and arbitrage profits.
- Network Stress: Blockspace becomes a rent-extractive commodity.
$50+
Peak Fee
>300k
Mempool Tx
02
The Solution: Layer-2s as the Primary Fee Sink
Scaling solutions like Lightning Network and Stacks absorb demand by moving transactions off-chain, but face their own liquidity and composability challenges. The real opportunity is building the infrastructure between these layers.
- Liquidity Bridges: Solutions like Bitcoin-native stablecoins (e.g., USDt on Liquid) become critical.
- Sovereign Rollups: Protocols like Babylon enable Bitcoin-secured chains without soft forks.
- Interoperability: Secure bridges to Ethereum DeFi and Solana are mandatory for capital flow.
~1 sat
L2 Tx Cost
<3s
Settlement
03
The Meta-Solution: Fee Market Derivatives & MEV
Volatile and predictable fee cycles create a new financial primitive: hedging future blockspace. This is the next frontier for Bitcoin DeFi.
- Futures & Options: Financialize blockspace to allow apps to hedge operational costs.
- MEV Extraction: As DeFi activity grows on L2s, order flow auctions and secure sequencers become valuable.
- RPC Infrastructure: High-performance node services (like Chainscore for Bitcoin) are needed to access real-time fee data and state.
$1B+
Market Potential
90%+
Fee Volatility
04
The Asymmetric Bet: Infrastructure Over Applications
Building another DEX on a Bitcoin L2 is a crowded trade. The higher-margin, defensible play is providing the foundational tools. Think Heroku for Bitcoin L2s, not the next Uniswap fork.
- Node-as-a-Service: Reliable, indexed access to multiple Bitcoin scaling states.
- Developer SDKs: Simplify integration with Lightning, RGB, or Taproot assets.
- Unified Liquidity Layers: Protocols that aggregate liquidity across Lightning, Rootstock, and sidechains.
10x
Less Saturated
B2B
Revenue Model
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