How is the mempool reacting to BTC exchange outflows ?
Let's dive in!
🔸Brief mempool mechanics
🔸How this occurred?
🔸Effects on BTC ?
Transactions made on the BTC network are not directly added to the blockchain
They are sent to a waiting room (mempool), run by individual nodes (a singularity on the bitcoin network)
Mempool: Unconfirmed Transactions Blockchain: Confirmed Packaged
These transactions are stored in this organized queue (mempool) until the process of auditing, validated, and broadcasted has occurred (processed by ea individual node)
💡There are 3 unique types of these nodes with various responsibilities: (Full, Light, Miner) 💡
What happened on Nov 14th:
We witnessed a high amount of network volume - traffic building up on-chain
This reaction occurred as we saw mass outflows off of exchanges.
Remember, every transaction must go through that screening process in order get classified (CONFIRMED)
During high amounts of congestion, the mempool stores these transaction until a miner picks it up and adds the block to the subsequent chain of blocks
How this effect's BTC?
When mempools get backlogs, during periods of heightened volumes, nodes will prioritize those with higher fees.
Hence, we can expect... 🔸Longer than AVG confirmation time 🔸Higher fees
💡The duration of this backlog depends the intersection between supply and demand
Other forward looking implications:
🔸The transpired events can also indicate strong participant conviction (BTC -> onchain)
🔸Reducing amount of liquid supply = reaching stronger long-term structural fundamentalsThis post is based on this twitter thread.