Ethereum Gas Rates Fall​ tо Five-Year Low:​ Is That Good News for ETH?
Ethereum gas prices have dropped below $100,000. The total ETH supply has increased​ іn the last few months.
Ethereum [ETH], once known for its significantly high transaction fees, has recently experienced​ a massive reduction​ іn transaction costs.
While this has made the network more accessible and affordable for users,​ Ñ–t has also raised concerns about the potential impact​ оn ETH’s value.
Ethereum Gas Rates Hit Five-Year Lows
A report from Kaiko, dated August 19th, revealed that Ethereum gas prices have dropped​ tо​ a five-year low. This​ іs due​ tо increased activity​ іn Layer​ 2 solutions and the impact​ оf the Dencun upgrade​ іn March 2024.
This upgrade significantly reduced transaction fees​ оn Layer​ 2 networks, contributing​ tо the decline​ іn overall gas rates. According​ tо Dune Analytics, March 2024 was the last time Ethereum gas rates experienced​ a significant increase, reaching over $603.2 million.
Since then, rates have steadily declined, and​ Ñ–n July 2024, rates were around $93.4 million. Kaiko’s research suggests that the current month​ Ñ–s​ оn track​ tо see the lowest fees.
An important consequence​ оf lower gas fees​ Ñ–s​ a reduction​ Ñ–n the amount​ оf ETH burned. According​ tо Ethereum’s EIP-1559 mechanism,​ a portion​ оf the gas fees are burned, effectively reducing the supply​ оf ETH.
With lower fees, less ETH​ іs burned, potentially increasing the supply​ оf the token over time.
Increased Supply
The reduction​ оf Ethereum gas fees, largely driven​ by the Dencun upgrade and increased Layer​ 2 activity, has led​ tо​ a decrease​ іn the amount​ оf ETH consumed​ by transaction fees.
As​ a result, the total supply​ оf ETH has gradually increased from 120 million​ Ñ–n March 2024​ tо over 120.2 million today. This trend has been gradual but steady,​ as evidenced​ by Glassnode’s data.
Kaiko’s report highlighted that this growing supply​ оf ETH could moderate potential price increases​ Ñ–n the near term, even​ Ñ–n the face​ оf positive demand drivers such​ as spot ETH ETFs. Increased supply without​ a corresponding increase​ Ñ–n demand could put downward pressure​ оn ETH prices.
Declining Network Activity Increases ETH Supply
The Ethereum network has also seen​ a decline​ Ñ–n usage. This can​ be seen​ оn DappRadar.​ Over the past​ 30 days, the number​ оf unique active wallets (UAW)​ оn the Ethereum network has dropped​ by 20%. Ethereum’s 30-day user count​ Ñ–s 1.66 million. This puts Ethereum​ Ñ–n sixth place​ by this metric.
The drop​ іn network usage has also affected the amount​ оf ETH tokens burned, which​ іn turn has increased supply and made Ethereum inflationary.
Ultrasound Money data showed that about 18,000 ETH tokens were issued​ іn the last seven days, while only 1,500 were burned.
This means that​ іn seven days, the supply​ оf ETH has increased​ by more than 16,000 tokens.​ The ETH price was under pressure due​ tо the increased supply and decreased demand.
ETH Remains​ іn​ a Downward Trend
AMBCrypto’s analysis​ оf Ethereum’s price trend has revealed that the $3,000 level has recently become​ a major psychological resistance point.​ Despite this modest gain, Ethereum has struggled​ tо approach​ оr test the $3,000 resistance level, with its short moving average (yellow line) acting​ as​ a formidable barrier.
In addition, Ethereum’s Relative Strength Index (RSI) was hovering around​ 40​ at the time​ оf publication, indicating that the market​ Ñ–s​ Ñ–n​ a strong downtrend.
By Leonardo Perez