December 15, 2023
Greg Cipolaro

Research Weekly - A Massive Backlog of Transactions Awaits Confirmation


  • Bitcoin's growing transaction queue is a benefit to miners.
  • Updates in the ETF races as we head into the homestretch.
  • The implications of the change in the accounting regime for bitcoin.

Mempool Zooms to New Highs

Bitcoin's mempool, the global inventory of transactions awaiting their turn to be included in blocks, has reached new heights this week. According to data from, Bitcoin's mempool at one point reached 372 MvB (mega virtual bytes), surpassing the frenzies induced by Ordinals or BRC-20 earlier this year, and even exceeding the cycle peaks of 2017 and 2021. As a refresher, Bitcoin transactions under SegWit allow for a maximum block size of 4 million weight units, which is equivalent to 1 MvB. This implies that the transaction queue stretches across an astonishing 372 blocks, equating to nearly 2.6 days based on an assumption of 144 blocks per day.

Weekly 4-Dec-15-2023-04-44-26-0416-PM

Link to Chart

Certainly, the process of clearing the global queue of Bitcoin transactions is not as straightforward as one might think or the 2.6 day figure implies. To entice miners to prioritize their transactions amidst network congestion, users can opt for higher fee rates (measured in satoshis per vbyte). On the other hand, transactions that are not time-sensitive can be attached with lower fee rates, resulting in a longer confirmation time by miners. Transactions do not necessarily take 2.6 days to be confirmed; users simply need to pay higher transaction fees to miners. This is precisely what we have observed recently - an increase in fee rates for transactions. While the fee rates of 400 sats/vbyte have been broken recently, it is not quite as high as what we witnessed in early May during the peak of BRC-20s. In fact, during that craze, fee rates reached a staggering 500 sats/vbyte.

Weekly 2-Dec-15-2023-04-46-25-2325-PM

The recent surge in fees directly impacts miner profitability. Until recent, miner revenue has been largely dependent on the block reward, the 6.25 BTC per block awarded for creating new blocks, while transaction fees only contributed a mere 2% to their overall revenue. However, with the growing popularity of NFTs and BRC-20s, fees are now playing a much more substantial role in miner revenue. Although the network has yet to surpass the record-breaking transaction fees witnessed in early May, transaction revenue has been more persistently high, bringing more consistent benefits to miners.

Weekly 3-Dec-15-2023-04-46-13-4572-PM

ETFs Lumber Toward January Deadline

The race for the industry to finally get a spot bitcoin ETF approved is entering the final phase, with a decision expected to be rendered by the SEC January 8th - 10th. While on the surface, the industry continues to watch the calendar for the arrival of these dates. Underneath the surface, a flurry of activity continues to occur between the fund sponsors and the agency. While January 10th is the final deadline for the SEC to approve Cboe BZX’s 19b-4 for the ARK 21Shares ETF, the exchange’s request for a rule change to list and trade the ETF, the registration statements (S-1 or S-3) of the trusts (ETFs) also need to be deemed effective by the agency. The SEC’s Division of Trading and Markets oversees approving the 19b-4 while the SEC’s Division of Corporation Finance oversees approving the registration statements, which is where most of the action has been occurring.

At contention seem to be the mechanics of the ETFs, especially how shares are created and redeemed in exchange of the underlying bitcoin. Many meetings between the sponsors and agency have occurred, resulting in numerous amendments to registration statements. On the surface, the agency seems to prefer the “cash” method for create/redeem, as it safeguards regulated entities, broker-dealers, from issues that may arise in the unregulated bitcoin markets, like balance sheet and funding risk. On the flip side, sponsors appear to favor the “in-kind” methodology for simplicity, lower tracking error, reduced costs, and tax benefits.

The SEC seems to be having its way on the cash vs in-kind debate, however. Several sponsors have switched entirely to or added cash creation and redemption methodologies, including Bitwise, Fidelity, Invesco Galaxy, and Franklin Templeton. We would expect to see continued updates to registration statements as the SEC continues its deliberations. Ultimately, the registration statements would likely be deemed effective sometime after an approval of the 19b-4s in early January, leaving a time between when ETFs are seen as “greenlit” by the market and when the ETFs actually begin trading on exchanges.

SEC Issues Accounting Guidance for Digital Assets

This week, in a long-awaited move, the Financial Accounting Standards Board (FASB) issued prescriptive guidance for the accounting of digital assets, including bitcoin. Prior to this guidance, the standard had been to account for bitcoin as an intangible asset, which is initially held at cost on the balance sheet and written down on price declines, but never up. With the new guidance, bitcoin will be marked at fair market value, written up or down depending on the change in price. This accounting treatment should give consumers of financial statements a more accurate picture of a company’s economic condition, and thus removes an obstacle for corporate ownership. In anticipation of the guidance, we released a report about what the change would mean. Readers can access the report below.

Link to Report

Market Update

Weekly Markets-Dec-15-2023-04-50-19-4628-PM

Bitcoin held flat on the week despite bumpy trading Sunday evening into Monday morning. Fears about a Senator Warren bill targeting the crypto industry induced +$100M in long perpetual swaps liquidations across exchanges. Bitcoin’s price has recovered from the low point during that liquidation event but the major catalyst, the SEC decision on spot ETFs, is still a few weeks away. Other assets classes had a strong week as dovish comments from Fed Chair Jay Powell propelled both stocks and bonds. The S&P 500 rose 2.7% and the Nasdaq Composite rallied 3.0%. Bonds rallied as well, with investment grade corporate bonds rallying 1.7%, high yield corporate bonds up 0.7%, and long-term US Treasuries up 4.2%. Gold held flat while oil bounced back 3.3%.

Important News This Week


Blackrock and Fidelity Hash Out Details Over Spot Bitcoin ETF Redemption Models with The SEC As Anticipation Mounts - The Block

Decentralized Exchange Uniswap Expands to Bitcoin Sidechain Rootstock - CoinDesk

S&P Global Ratings Launches Stablecoin Stability Assessment - S&P

'Bitcoin NFT' Hysteria Comes to Sotheby's as Super-Mario-Style Mushroom Character Tops $200K - CoinDesk

Regulation and Taxation:

Warren Expands Coalition of Banking Committee Support for Bill Cracking Down on Crypto’s Use in Money Laundering, Drug Trafficking, Sanctions Evasion - Senator Warren

FASB Issues Standard to Improve the Accounting for and Disclosure of Certain Crypto Assets - FASB

Financial Regulators Reiterate Call for Legislation to Address Crypto Risks - CoinDesk


DTCC closes deal to buy Securrency Amid TradFi-Crypto Integrations - Blockworks

Upcoming Events

Dec 29 - CME expiry

Jan 5 - Comment rebuttal deadline for Franklin, Hashdex ETFs

Jan 10 - Final ETF decision deadline for the first bitcoin ETF, ARK 21Shares

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