Bitcoin’s Fee Market

Bitcoin has evolved significantly since 2009, with increasing adoption, key protocol upgrades like SegWit and Taproot, and the emergence of new use cases such as Ordinals, BRC-20, and Runes, all of which have reshaped the network’s dynamics, including the fee market.

The fee market is a critical component of interacting with the Bitcoin network, as any interaction must take the form of a transaction recorded on the blockchain. To incentivize miners to include a transaction in a block, users must offer a fee. Due to Bitcoin’s design, each block has a size limit, restricting the number of transactions that can be included in a single block. Additionally, new blocks are mined approximately every 10 minutes, making blockspace a scarce and valuable resource.

This setup creates a bidder’s market where users compete for limited blockspace. To prioritize their transactions and ensure faster inclusion in a block, users offer higher fee rates (measured in satoshis per virtual byte, or sat/vB). As competition for blockspace intensifies - especially with the introduction of new use cases - the fee market becomes increasingly dynamic and volatile, reflecting fluctuations in demand for blockspace.

During periods of congestion, when demand for blockspace outstrips supply, fee rate spikes occur as users bid higher to ensure quicker transaction confirmations. Transactions offering lower fees may remain in the mempool, where they face delays unless users adjust their fees upward.

As the network continues to evolve, analyzing key metrics reveals how these changes impact fee rate volatility. This also highlights the growing relevance of financial products designed to provide exposure to Bitcoin's fee rate, offering new opportunities for trading, speculation, hedging and risk management.