Janice R. Andrews
This week, Ethereum’s gas costs fell to a five-year low—a noteworthy phenomenon that has drawn interest from both consumers and analysts. Experts in the market believe that the steep drop in fees—which some credit to consumers switching to more fashionable and effective blockchains—may portend a positive development for ETH, the native coin of Ethereum.
In a recent letter to CoinDesk, Ryan Lee, Chief Analyst at Bitget Research, outlined the possible ramifications of this decline. “Every time ETH gas fees drop to rock bottom has often signaled a price bottom in the mid-term,” Lee said. “ETH prices tend to strongly rebound after this cycle, and when this moment coincides with an interest rate cut cycle, the market’s wealth effect is full of possibilities.”
Users on the Ethereum network have to pay gas fees in order to conduct transactions. These prices dropped as low as 0.6 gwei (a unit of gas) earlier this week, with low-priority transactions costing only 1 gwei or less. This is a more than 95% decline from the 83.1 gwei levels observed in March, when network activity peaked, and is an uncommon event in recent years.
Because users and apps have begun favoring alternative blockchains, there is less demand for Ethereum block space, which is the main cause of the drop in Ethereum gas fees. “The drop in Ethereum’s gas fee prices to a five-year low can be attributed to the migration of meme season and Dapp interactions to other faster and cheaper blockchains like Solana and Layer 2,” Lee said. He also discussed how the Dencun project has cut gas prices by increasing network efficiency.
Significant modifications were made to the Ethereum network’s transaction processing and validation procedures with the release of the Dencun update in March. Ever since July, Solana-based apps—Pump in particular—have received more fees in a 24-hour period than Ethereum has. This was last observed on August 13.
Even if at first glance the reduced gas prices seem like a good thing, they have also resulted in less ETH being burned. The supply of the token has somewhat increased as a result of this. According to data, during the previous week, around 16,000 ETH, or about $42 million at current rates, were added to the total supply of ether, putting it on course to increase by 0.7% this year.
The effects of these changes on Ethereum’s future will depend on how the market develops over time, although historical patterns indicate that a bull market for ETH may be approaching.
