The Impact of Bitcoin Halving on Transaction Fees and Market Manipulation

Key Takeaways

• Bitcoin experienced its fourth halving on Friday, with the amount of bitcoin created roughly every 10 minutes dropping to 3.125.
• Following the halving, the bitcoin price stabilized; however, fees on the network spiked in relation to the launch of a new protocol for issuing tokens.
• The fees associated with Grayscale’s second spot bitcoin ETF product have been disclosed, and they’ll make the Bitcoin Mini Trust the cheapest offering on the market.
• A jury in New York found a man guilty of fraud and market manipulation in a $110 million scheme on the Mango Markets DeFi platform.
• This week, analysts are continuing to track the aftereffects of the bitcoin halving, including the long-term effects of a falling block subsidy with the network’s overall security.

The fourth bitcoin (BTC) halving event occurred Friday evening without much immediate effect on its price, though by Monday the cryptocurrency was trading higher at above $66,000. A sudden spike in Bitcoin network transaction fees around the halving was observed and that was credited to the launch of Runes, a new meta protocol for issuing tokens on top of the Bitcoin blockchain.

Outside of the halving, the low fees associated with Grayscale’s new spot bitcoin exchange-traded fund (ETF) offering, the Bitcoin Mini Trust, were disclosed. Additionally, the crypto world experienced the first conviction in a case involving market manipulation.

Bitcoin Network Transaction Fees Spike After Halving

The bitcoin halving event was much anticipated and closely watched by investors and miners alike. Halvings are significant because they reduce by half the rate at which new bitcoins are generated and rewarded to bitcoin miners roughly every 10 minutes. This most recent halving reduced the block reward to 3.125 bitcoins per block.

While there were no immediate price swings for bitcoin, there was a sudden jump in transaction fees on the network. The halving block was mined by mining pool ViaBTC. Notably, the miner earned more than 40 bitcoins in block subsidy and fees from this single block—significantly more than the average reward preceding the halving. This was due to a massive spike in transaction fees, possibly due to higher demand to be included in this historic block and a new development.

The Runes protocol, launched around the time of halving, led to higher fees on the Bitcoin network because it introduced a system in which participants could mint digital tokens directly on Bitcoin’s blockchain. This new capability sparked intense competition among users to register unique asset names first, causing them to pay increasingly higher transaction fees to prioritize their transactions in the Bitcoin network.

The day after the halving, the average Bitcoin transaction fee surged to an all-time high, according to Kaiko Research, one that’s more than seven times the rate a day prior and double the previous record.

Grayscale’s BTC To Be Cheapest Spot Bitcoin ETF

Digital asset manager Grayscale previously filed for an alternative to its current high-cost spot bitcoin ETF, known as the Grayscale Bitcoin Trust (GBTC). The new offering will carry a management fee of only 0.15%, positioning it as the most affordable option in the market, according to a recent filing. The existing GBTC, known for its 1.5% fee, will transition 10% of its assets to the new BTC Mini Trust as part of this strategic move. This transition will also include an automatic issuance and distribution of BTC trust shares to existing GBTC shareholders.

This initiative is designed to align Grayscale’s offerings more competitively with other recently approved bitcoin ETFs with lower fees. According to data from Blockworks, the lowest-cost spot bitcoin ETF available is the Franklin Bitcoin ETF (EZBC), which has a fee of 0.19%. In addition, for GBTC’s existing shareholders, this spinoff won’t trigger a taxable event, meaning they won’t face capital gains tax for transferring their holdings to the new fund.

As of now, GBTC holds approximately $19.6 billion in assets, which makes it the largest spot bitcoin ETF on the market. GBTC’s closest competitor is BlackRock’s iShares Bitcoin Trust (IBIT), which has assets totaling just over $17.5 billion.

Crypto’s First Market Manipulation Conviction

On Thursday, Avraham Eisenberg was found guilty by a jury on all three charges of fraud and market manipulation in a $110 million scheme on the Mango Markets platform. The charges stem from when Eisenberg engaged in trades that artificially inflated the value of Mango Markets’ native token, MNGO, and its associated futures contracts. He then leveraged these overvalued futures as collateral to withdraw substantial amounts of other cryptocurrencies from the platform.

According to U.S. Attorney Damian Williams, this was the first conviction for market manipulation in the crypto arena. “If you engage in fraudulent activity, whether that be in the cryptocurrency space or through other forms of market manipulation, you will be held accountable for your ill-gotten gains,” said FBI Criminal, Cyber, Response, and Services Executive Assistant Director Timothy Langan.

Eisenberg now faces up to 20 years in prison, signaling a significant precedent for the enforcement of U.S. laws in the decentralized finance (DeFi) ecosystem.

What To Expect in the Markets This Week

This week, crypto market observers are still tracking the lingering effects of the bitcoin halving. While the price is obviously a key area of attention, the potential for meta layers, such as Runes and Ordinals, to help provide long-term security for the Bitcoin network via increased demand for block space will also be a key phenomenon to watch. Also, it’s possible that higher fees at the base layer could foster greater adoption of various Layer 2 networks such as the Lightning Network and sidechains.

While a report from CoinShares indicates some miners may shift to artificial intelligence (AI) as the halving leads to lower revenue, there are a number of factors that could more than make up for the lost earnings caused by the halving. Shares of bitcoin miners such as Riot Platforms (RIOT), Hut8 (HUT), and Marathon Digital (MARA) traded substantially higher on Monday.

It remains to be seen whether the fourth halving will lead to another massive bull run—as was the case with previous halvings; reports from Deutsche Bank and JPMorgan have said that the event may already be priced into the market.

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