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A CME Group economist believes that rising transaction costs could cause a bitcoin price crash.
Erik Norland, an executive director and senior economist at U.S. derivatives exchange operator CME Group, published an article theorizing that the rising cost of bitcoin transactions could be an early indicator of an impending bitcoin price crash.
The average transaction cost is calculated by dividing miner revenue – which includes both transaction fees and block rewards – by the number of transactions made across the network. Though similarly named, it’s important to note that the transaction cost is a metric distinct from the average transaction fee, which refers exclusively to the fee that bitcoin users pay to have their transactions recorded in the blockchain.
At present, miners earn just nine percent of their revenue from transaction fees; the remainder is subsidized through the block reward. This is why the average transaction fee is so much smaller than the transaction cost – although many users still protest that fees are too high.
Norland notes that in both 2010 and 2013, the average transaction cost spiked just prior to severe price corrections, perhaps indicating that bitcoin had become overbought relative to its actually network utility. In 2010, the cost per transaction reached parity with the bitcoin price, which was then valued at approximately $30. In 2013, bitcoin soared to near $1,000 prior to the collapse of bitcoin exchange Mt. Gox, and the transaction cost rose as high as $80.