Record drop in gas fees, Ethereum in trouble

This spectacular decline, largely due to the increasing adoption of Layer 2 solutions and the Dencun update since last March has significantly reduced transaction costs. Thanks to the introduction of new features like “Blobs”, Layer 2 networks like Arbitrum or Base can now publish data to the main blockchain at lower costs.

One might think that this reduction in gas fees is a blessingbut it raises a big problem: lower fees also mean less ETH is burned.

Since April, the Continuous decline in fees led to a steady increase in the total supply of Ethereuman inflation situation that continues to give rise to concern and could endanger price stability in the long term.

According to Kaiko, the relationship between gas fees and cryptocurrency supply is crucial:

“Despite demand drivers such as spot ETFs, this supply growth could limit potential short-term price increases. “

An increase of 223,000 ETH in circulationor about $591 million at current price, has been recorded since April 2024. This supply surge is a warning sign for investors, as oversupply could maintain downward pressure on the Ether price.

The impact of the new dynamics on the cryptocurrency Ethereum

While the price of Ether struggles to regain positive momentum, The effects of falling gas fees are felt on several frontsThis situation, which may seem advantageous at first glance, conceals perverse effects that threaten market stability.

On the one hand, the decline in gas fees makes transactions more accessible, on the other hand reduces the ETH burn ratewhich helps increase the total supply. This excess of Ether directly impacts inflationary pressures, thus jeopardizing efforts to keep the cryptocurrency's price on an uptrend.

To illustrate the extent of this dynamic, here are some key figures:

• Since April, ETH supply has increased by 0.2% to 120.286 million units;
• The inflation rate of ETH is currently 0.71% per year;
• Every week, 16,500 ETH are added to the supply, which represents a significant amount on the market.

Despite the hopes placed in Ethereum ETFs, Investors are cautious. Recent spot ETFs have not yet had the expected impact and demand has not increased sufficiently to offset this growth in supply.

The drop in fees could be a sign of a possible “floor price,” but in a context where supply fundamentals are not controlled, this outlook remains uncertain. A savvy trader would say: “The road to the top is paved with good intentions and falling gas fees. “

The drop in Ethereum gas fees could well prove to be a double-edged sword: it can give the cryptocurrency Ether a boost, but at the same time calls into question its future valuation.

Maria M.

The revolution of blockchain and crypto is in March! While the day that our impact on the economy more vulnerable from this moon was sensitive, in any case, the direction I had chosen