Ethereum’s Record Low Gas Fees and Their Impact on Supply Inflation
Ethereum network fees have recently dropped to their lowest level in five years, benefiting users but also affecting the broader ecosystem, particularly in terms of issuance and supply.
On August 19, the industry research firm Kaiko reported that Ethereum’s gas fees had reached their lowest point since 2019. According to Etherscan’s Gas Tracker, the average fee on Ethereum’s layer-1 network is now just 2.15 Gwei, equivalent to about $0.13.
The decline in fees has been driven by increased activity on layer-2 solutions and the March Dencun upgrade, which reduced transaction costs on these secondary layers.
Implications for Ethereum Supply
Kaiko highlighted that these lower fees could have significant implications for Ethereum’s issuance and the amount of ETH being burned, potentially affecting the network’s deflationary status. If the supply continues to increase, it could hinder potential price gains, even with positive factors like the introduction of spot ETH ETFs.
Since April, Ethereum’s total supply has grown due to reduced network fees and a lower burn rate from EIP-1559. According to data from ultrasound.money, the ETH supply has risen by 0.2% since early April, adding around 223,000 ETH, valued at approximately $591 million, to the market.
Despite the recent increase in ETH supply, it remains lower than it was before the Merge in September 2022, marking an end to the rapid inflation observed previously. Currently, Ethereum’s supply is growing at an annual rate of 0.71%, with around 16,500 ETH being added each week. This is slightly lower than Bitcoin’s inflation rate of 0.83%.
However, projections still indicate that ETH supply will fall below 120 million by the end of the year, continuing its deflationary trend.
ETH Price Perspective
ETH prices have shown a modest increase, reaching $2,662 during Tuesday morning trading in Asia. However, prices have remained within a narrow range since the recovery on August 9, unable to break past the $2,750 resistance level. Despite this, some analysts suggest that the current low gas fees could indicate a price floor.
“Historically, when ETH gas fees drop to their lowest levels, it often signals a price bottom in the mid-term,” noted Ryan Lee, chief analyst at Bitget Research.
