Earlier this week, Ethereum gas fees dropped to their lowest point in five years, with some attributing this decline to users and applications migrating to trendier blockchains. Analyst Ryan Lee believes historical data shows a correlation between low gas fees and subsequent rises in ETH prices.
One analyst suggests that the sharp decline in Ethereum transaction fees could signal a bullish indicator for the network’s native token, ETH, citing historical data. “Whenever ETH gas fees hit a bottom, it often indicates a price floor in the mid-term,” Ryan Lee, Chief Analyst at Bitget Research Center, noted in a memo to CoinDesk on Friday. “ETH prices tend to rebound strongly following this cycle, especially when this coincides with an interest rate reduction cycle, the wealth effect in the market is full of potential.”
Gas fees are the essential costs users must pay to conduct transactions on the network. Earlier this week, fees dropped to 0.6 gwei (a unit of gas), with low-priority transaction costs only 1 gwei or lower—an uncommon occurrence in recent years. These fees have fallen by more than 95% from the March activity peak of 83.1 gwei.
A trend chart of Ethereum gas prices provided by @Hildobby/Dune indicates that reduced demand for Ethereum block space and a preference for other blockchain applications might be driving the decline in gas fees.
“The drop in Ethereum gas fees to a five-year low can be attributed to the meme season and the migration of decentralized applications to faster, cheaper blockchains like Solana and Layer 2 solutions, as well as the much-anticipated Dencun upgrade which improved network efficiency, thereby lowering gas fees,” Lee explained.
Dencun refers to two significant updates in March that altered the way transactions are processed and verified on the Ethereum network. Since July, applications based on Solana have outperformed the entire Ethereum network’s 24-hour fee income on several occasions, the most recent being on August 13.
Meanwhile, with lower gas fees, the amount of ETH burned has decreased, meaning the token’s supply is starting to increase. Data shows that nearly 16,000 ETH, approximately $42 million (at current prices), have been added to the total supply of Ether in the past week, with the supply expected to grow by 0.7% this year.