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    Bitcoin Transaction Fees Hit One-Year Lows, How Does This Affect The Price?

    Bitcoin transaction fees are usually an indication of how holders are moving their coins around. When the network gets congested due to a high number of transactions, the transaction fees go up, indicating a high volume of traffic on the network. Transaction traffic usually is high around bull markets when the price of the digital asset is up. Usually leading to a sell-off as investors try to take profits.
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    One thing, this recent bull market has been anything but usual. So many things that are normal around bull markets have not happened with this bull market. An example is the declining reserves on exchanges. Bitcoin going up would often trigger an increase in the exchange reserves with the bull market, which happens because investors are trying to sell off their coins. This bull market, however, has shown the opposite. Exchange reserves have plummeted, and along with it, bitcoin transaction fees are at one-year lows, indicating that investors are carrying out fewer transactions on the blockchain.
    Transaction Fees Plummet
    The current climate for bitcoin transaction fees has been at levels not seen since last year. The fees which had spike following the great miner migration out of China have now dropped back to pre-2021 levels. Competition for block space due to the reduced hashrate had seen the transaction fees of bitcoin go up by about 50% in July of 2021. But as miners have come back online and the hashrate has picked up, fees on the network have dropped again.
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    Current network activity shows that there is now less demand for block space on the blockchain. This is unique in the fact that during bull markets, demand for block space is usually at its highest. The last couple of bull markets have all shown similar trends. Bitcoin transaction volumes have spiked in previous bulls, leading to higher demand for block space, leading to higher transaction fees.

    BTC transaction fees plummet | Source: Arcane Research
    Presently, the average transaction fee for bitcoin transactions sits at $3. Average transaction fees have not been this low since October last year when the average fee was $3. Comparing this to April, when the bull market was in full force, the average transaction fee had been $61. Competition for block space was high as investors moved their assets around.
    How This Affects Bitcoin Price
    The price of the digital asset, like any other asset, is tied to the demand for the asset. Given the current transaction fees and transaction volumes, this shows that investors are not moving too much of their digital assets around. Hence, it points towards more hold sentiment amongst investors. This could spell the continuation of the bull market. Maybe one last bull run before the market finally gives in to the bears.
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    Hold sentiment has always been important when it comes to the price of the digital asset. This shows that bitcoin investors are more inclined to buy more coins instead of selling their existing stash. Thus creating scarcity in the market, which is evidenced by the decreased exchange reserves, which have also hit one-year lows.  Scarcity inadvertently leads to a higher value for an asset. Playing to the basic laws of economics.

    BTC ready for another $48,000 retest | Source: BTCUSD on TradingView.com
    The price of bitcoin is currently above $48,000. A successful test of the $48,000 resistance point had seen the asset climb $400 above this, before losing hold and falling back below this crucial point. Indicators still show a positive upward trend in the price of the asset. Possibly a green close by the end of the midweek trading day.
    Featured image from CNBC, chart from TradingView.com

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