Record Drop in Fees Could Benefit Ethereum

The drop in transaction fees on the Ethereum network has reached record levels. This week, these fees fell to 0.6 gwei – that is, less than one unit. This represents a 95% drop from the peaks recorded in March.

Along with this historic drop, the movement on the network also fell. But according to analysts, this indicates that the market is close to a bottom and new highs may come.

Background creation

Over the past 48 hours, ETH has erased nearly all of its gains from the week. However, Bitget’s chief analyst Ryan Lee has stated that the rally could be nearing its end.

“Whenever ETH gas fees bottom out, it often signals a mid-term price bottom. ETH prices tend to bounce back strongly after this cycle, and when this timing coincides with an interest rate cut cycle, the market wealth effect is ripe for possibilities,” Lee said.

On the Ethereum network, the term gas refers to the cost a user must pay to perform a transaction. Whenever someone buys or sells ETH, or any other ERC-20 token, they must pay these fees. Typically, transaction prices rise after a period of high demand, making the network more expensive to use.

This time, however, fees dropped to 0.6 gwei (a unit of gas) earlier this week, with low-priority transactions costing just 1 gwei or less — a rare occurrence in recent years. The fees represent a drop of more than 95% from levels of 83.1 gwei in March, when the network saw a spike in activity.

Less demand for Ethereum

One of the factors that explain the low fees is the lack of demand for block space on Ethereum. In other words, few people are using the network to create projects and make transactions.

In fact, in 2024, investors decided to use Ethereum less, which lost ground to networks like Solana. Another factor that explains this drop in demand is Layer 2 networks, which have lowered costs for investors.

“The drop in Ethereum gas fee prices to a five-year low can be attributed to the meme season and dApp migration to other faster and cheaper blockchains such as Solana and Layer 2 networks, as well as the long-awaited Dencun upgrade, which improved network efficiency and therefore reduced gas fees,” he explained.

Launched in March, the Dencun upgrades changed how transactions were processed and validated on the Ethereum network. And the Pump.fun network, launched in July on Solana, has pocketed more fees than the entire Ethereum network in a single 24-hour period on a few occasions, most recently on Aug. 13.

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