“Every time ETH gas fees drop to rock bottom has often signaled a price bottom in the mid-term,” Ryan Lee, chief analyst at Bitget Research, in Friday note to CoinDesk. “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.”
Gas refers to the necessary cost a user must pay to perform a transaction on the network. Fees dipped as low as 0.6 gwei (a unit of gas) earlier this week with low-priority transactions costing only 1 gwei or lower – a rare occurrence in recent years. The fees represent a more than 95% drop from the 83.1 gwei levels in March, when the network saw a spike in activity.
Lack of demand for Ethereum block space and a preference for using applications on other blockchains has likely led to the drop in fees, Lee said.
“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, as well as the long-awaited Dencun upgrade that had improved the network efficiency and, therefore, reduced the gas fees,” he explained.
Dencun refers to two majors updates from March that changed how transactions were processed and validated on the Ethereum network. Since July, Solana-based application Pump has pocketed more fees than the entire Ethereum network in a single 24-hour period on a few occasions, most recently on August 13.
Meanwhile, the lower amount of ether (ETH) being burned due to lower fees means that the token's supply has begun to increase.
Data shows that nearly 16,000 ETH, or nearly $42 million at current prices, was added to ether's total supply over the past week, pushing supply on track grow 0.7% this year.