Ethereum is experiencing a significant shift as its gas prices plunge to unprecedented lows. On August 19, 2024, Ethereum’s daily mean gas price reached a record low of 2.9 Gwei, and its average fees in USD fell to a new multi-year low of $0.85. This dramatic decrease in transaction costs is stirring up conversations among crypto traders and investors. While lower fees typically benefit users, the broader implications for Ethereum’s market performance are causing some concern.
One major factor contributing to this drop is the recent Dencun upgrade, which was activated on March 13, 2024. This upgrade introduced a new type of transaction called “Blobs,” designed to significantly reduce fees for Layer-2 networks like Arbitrum, Base, and Optimism. These networks now handle a significant portion of Ethereum’s transaction volume, leading to reduced demand for on-chain transactions and, consequently, lower gas prices.
Despite the decrease in gas fees, Ethereum’s daily burn rate—an indicator of how much ETH is being removed from circulation—has also fallen. In 2024, ETH emissions have surpassed burns, resulting in a net addition of over 75,000 ETH to the network. This increase in supply, coupled with the decline in gas fees, raises questions about whether Ethereum’s price can maintain its momentum.
Traders and investors are keeping a close eye on how these changes affect Ethereum’s market dynamics. The surge in ETH supply, combined with ongoing price declines, is contributing to a sense of unease. As of the latest data, ETH’s price has dropped by 35% since the Dencun upgrade, currently trading around $1,585. This decline comes amidst mixed signals from Ethereum ETFs and slight inflows into digital asset investment products.
While the low gas fees are a positive development for users, they could signal deeper issues for Ethereum’s market value. The fragmentation of liquidity and user activity between Ethereum and its Layer-2 networks might impact investor confidence and market stability. The current state of the ETH market reflects a complex interplay of technical upgrades and market sentiment, leaving traders to navigate a landscape of both opportunity and risk.
