Rune is taking over the Bitcoin network. This new token standard, launched alongside the latest Bitcoin halving, has been previously mentioned in this newsletter. This is in the context of the hype driving up Bitcoin’s average transaction fees even before its debut and helping miners earn lower block subsidy rewards with transaction fees. Profits reached new highs.
And for the most part, this trend still holds. The seven-day moving average of Bitcoin’s average transaction fee exceeded $40 last week, which is ten times higher than Ethereum’s average transaction fee of $4.10.
And total fees paid on Bitcoin also surpassed Ethereum, with the 7-day moving average of total fees paid on the network rising to $25.77 million (the non-average figure reached $80 million). With or without moving averages, the metric has hit new all-time highs.
One indicator that has recently flipped is the market capitalization to transaction fee ratio of Bitcoin and Ethereum. This metric is the market capitalization of the underlying asset on the blockchain divided by the total annual fee amount paid on the network.
This is the same as looking at a traditional company’s price-to-earnings ratio, which can be calculated by dividing the company’s market capitalization by its net income. The net profit of a blockchain network is the total amount of fees it collects, as it is essentially the cost users pay to interact with the network. Looking at a single P/E ratio doesn’t really mean much. Comparing yourself to your peers is more helpful. A high P/E ratio may mean that the company is overvalued because its market capitalization is higher than the multiple of the earnings it has earned, and similarly, a low P/E may indicate the opposite.
For the first time since July 2019, the 7-day moving average of Bitcoin’s market capitalization to transaction fee ratio is lower than that of Ethereum. At the beginning of the month, the moving average of the Bitcoin rate was 2,400, compared to Ethereum’s rate of 118.33, but on April 25, the Bitcoin rate fell to 220.77, lower than Ethereum’s 227.12.
This does not mean that Bitcoin is currently undervalued and Ethereum is overvalued. According to our calculations, it is natural for Bitcoin rates to fall when fees increase. Even during periods of previously high fees, Bitcoin’s larger market capitalization has maintained a percentage higher than that of the second-largest cryptocurrency. The rate came close to a reversal in December 2023, when Bitcoin experienced a surge in block demand due to the excitement of Ordinals. However, this is still an interesting metric to look at and shows the scale of demand impacting the network in the wake of the Runes protocol.
The rate reversal was short-lived as Bitcoin fees recently began to slow.
This is an excerpt from The Block’s Data & Insights newsletter. Dive into the numbers that make up the most thought-provoking trends in your industry.
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