Ethereum gas expenses have dropped to their lowest in five years due to Layer 2 expansion.
The Dencun upgrade has reduced transaction costs significantly across the Ethereum network.
The rising ETH supply is putting pressure on its market price despite increased demand from recent developments.
Ethereum gas fees have reached their lowest point in five years, showing significant changes within the network. This drop, reported on August 19, 2024, is due to the increased use of Layer 2 networks and the Dencun upgrade from March 2024. These developments have lowered transaction costs, affecting Ethereum's supply and market dynamics.
Layer 2 Networks Cut Costs
Layer 2 networks are key in reducing Ethereum gas fees. These networks, like Arbitrum and Base, work off-chain and reduce the load on Ethereum’s mainnet. Users now face lower transaction costs. The Dencun upgrade introduced ‘Blobs,’ which further decreased costs, making transactions cheaper for users.
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The lower transaction fees have also reduced the amount of ETH burned during operations. Since April 2024, this has led to a steady rise in the total supply of ETH. The growing supply has started to affect Ethereum’s market performance by putting pressure on its price.
Effects on Ethereum's Market
The increase in Ethereum’s supply, driven by lower gas fees, is a key factor in its market outlook. The approval of a Spot Ethereum Exchange-Traded Fund in the United States was expected to boost demand. However, the rising supply has raised concerns. Ethereum’s price dropped over 3% since the previous day, hovering near $2,590. The trading volume increased by 30%, showing higher investor sentiment.
Despite this trading activity, Ethereum’s open interest stayed the same. This shows traders are uncertain about the future direction of the cryptocurrency. The balance between rising supply and market demand continues to shape Ethereum's market dynamics.
What’s Next for Ethereum?
The drop in gas prices and the rise in ETH supply come at a crucial time. Historically, the coin's gas charging rates have fluctuated, especially during high-demand periods like the 2021 DeFi boom. The current trend of decreasing costs shows broader technological advancements within the ETH network. However, the growing supply creates challenges for Ethereum’s price stability, raising questions about the network’s future path.
Ethereum’s trading cap has also dropped by nearly 26% over the past 30 days, showing major selling pressure. The investors will watch closely to see how these dynamics affect Ethereum’s position in the crypto environment.
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