Centralized exchanges are playing a decreasingly important role within Bitcoin network activity, which is highlighted by the number of fees that stem from transactions taking place on exchanges.
In past years, exchanges accounted for a far higher percentage of the transaction fees received by miners than presently.
This seems to indicate that although exchanges still play a major role within the ecosystem, users are beginning to transact with BTC at a far higher pace outside of these centralized venues.
This is a positive development, as it suggests that the network is seeing growing utility beyond just being a speculative instrument used by traders and investors.
New Market Participants Flock to Bitcoin
Per data cited within the report, transaction volume on top-tier exchanges shows that the amount of investors and capital entering the crypto market has been on the up and up in recent weeks.
In August, trading volume on exchanges increased by nearly 60% from where they were just one month prior.
“In August, Top-Tier volumes increased 58.3% to $529bn while Lower-Tier volumes increased 30.2% to $291bn. Top-Tier exchanges now represent 64% of total volume (vs 60% in July.)”
Image Courtesy of CryptoCompare.
This growth in volume likely stems in part from investors looking to increase their exposure to BTC due to its recent strength. It may also point to the number of new investors entering the market – which is shown by the growing number of unique BTC wallet addresses.
Fee Dominance Shows that BTC Network Activity is Shifting Away from Exchanges
Per recent data from Glassnode, it appears that Bitcoin’s on-chain network activity is beginning to migrate away from centralized exchanges.
“On-chain Exchange Fee Dominance shows the major role that centralized exchanges play in the Bitcoin ecosystem. 20% of all miner fees are currently used for BTC txs involving exchange activity. In 2018 after BTC peaked, this number was as high as 41%.”
Image Courtesy of Glassnode.
Because exchanges’ Bitcoin fee dominance remains historically low despite the inflows of new investors, it appears that the market may have significantly further room to grow in the near-term.
This data also elucidates underlying strength for the Bitcoin network, as users are now transacting heavily outside of exchanges.
Featured image from Unsplash.