Bitcoin fell by more than 4% on Monday to $27,787.05 following reports by one of the biggest crypto exchanges in the world about “congestion” on the Bitcoin network. The price of Ether also dropped by more than 3% to $1,856.87. This was after Binance tweeted on Sunday that the Bitcoin network was “experiencing a congestion issue” and that it was temporarily closing bitcoin withdrawals as a result until the network stabilized.

Bitcoin Outflow and Withdrawal Pause at Major Exchange

Reports of a large bitcoin outflow and withdrawals being paused at a major exchange could be factoring into some of the weakness we’re seeing. However, Joel Kruger, market strategist at LMAX Group said, “Only a break back below $25,000 would give reason for concern. Until then, we suspect dips will continue to be very well supported.”

Bitcoin Network Congestion

The issue of Bitcoin network congestion has highlighted a long-known setback of the Bitcoin network: it wasn’t designed to handle a large number of transactions at scale. It processes just seven to 10 transactions per second, making it unviable as a potential rival to companies such as Visa and Mastercard. This is why projects such as the Lightning Network, which helps speed up transactions without affecting the network, have gained in popularity.

Bitcoin's Parabolic Spike in Transaction Fees

Last week, there was a “parabolic spike” in transaction fees on the Bitcoin network, according to Alex Thorn, head of firmwide research at Galaxy. He attributed it to users minting BRC-20 tokens, an experimental token on the Bitcoin blockchain that ultimately allow users to create NFTs on Bitcoin. In the 14 days preceding Friday, mean transaction fees on Bitcoin increased 297%.

Binance Adjusts Fees and Working on BTC Lightning Network Withdrawals

Service on Binance resumed after halting withdrawals due to Bitcoin network congestion, but later on Sunday evening, the exchange again halted withdrawals. Binance tweeted, “To prevent a similar recurrence in the future, our fees have been adjusted. Our team has also been working on enabling BTC Lightning Network withdrawals, which will help in such situations.”

Bitcoin Network Congestion and the Rise of BRC-20 Tokens

The Bitcoin network processes just seven to ten transactions per second, making it unviable as a potential rival to companies such as Visa and Mastercard. This has led to the rise of BRC-20 tokens, an experimental token on the Bitcoin blockchain that allows users to create NFTs on Bitcoin.

On May 1, about 50% of bitcoin transactions were BRC-20 mints, according to Alex Thorn, head of firmwide research at Galaxy. Thorn also noted a "parabolic spike" in transaction fees on the Bitcoin network last week, which he attributed to users minting BRC-20 tokens.

Expert Opinion on Bitcoin Price Action

Joel Kruger, market strategist at LMAX Group, noted that there haven't been any major developments in terms of bitcoin's price action, with bitcoin still very much confined to a multiday bullish consolidation. Kruger added that only a break back below $25,000 would give reason for concern, and until then, dips will continue to be very well supported.

The Future of Bitcoin and NFTs

While the rise of BRC-20 tokens is a positive sign for the Bitcoin network in the long term, it has slowed down the network in the short term. Oppenheimer analyst Owen Lau believes that the adoption of different types of tokens like NFTs should be viewed positively in the longer term. Binance has also announced that it is working on enabling BTC Lightning Network withdrawals, which will help prevent similar congestion issues in the future.