How Supply Inflation Affects Ethereum’s Five-Year Low Gas Rates

On August 19, industry research firm Kaiko reported that Ethereum gas rates recently hit five-year lows.

According to Etherscan’s Gas Tracker, the average network fee on Ethereum Layer 1 is currently 2.15 Gwei or just $0.13, the lowest it has been since 2019.

This drop has been driven by increased Layer 2 activity and Dencun’s March upgrade, which lowered Layer 2 transaction fees.

Impact on Ethereum Supply

Kaiko reported that this reduction in fees may have implications for the issuance of Ethereum and the amount burned when gas is used. This could also have an impact on prices if supply is no longer deflationary.

“Despite demand drivers such as spot ETH ETFs, this growing supply could dampen potential near-term price increases.”

Our latest data report is just out.

This week we discuss how rate cuts will affect tokenized treasuries, $ETH gas rates, AI tokens and more. https://t.co/TdnkmRATSP

— Kaiko (@KaikoData) August 19, 2024

The total supply of ETH has increased since April as a result of falling network fees and a lower burn rate of the EIP-1559 base fee. According to ultrasound.money, the supply of ETH has increased by 0.2% since the beginning of April, from 120.063 million to about 120.286 million.

That’s an additional 223,000 ETH worth approximately $591 million at current spot prices added to the supply over the past four months. However, the supply of ETH is still lower than it was at the time of the merger in September 2022, so the rapid inflation in front of them has stopped.

Currently, the analytics platform reports that the supply of ETH is increasing by 0.71% annually on a weekly time frame. This means that around 16,500 ETH per week is added to the current burn rates. In comparison, Bitcoin’s supply inflation rate is slightly higher than 0.83% over the same time period.

However, the model still predicts that the supply of ETH will fall below 120 million by the end of this year, continuing on its deflationary path.

ETH Price Outlook

ETH prices have rallied over the past 12 hours or so to reach $2,662 during Tuesday morning’s Asian trading session. However, they have been tightly bound since the August 9 rally and have failed to break the resistance above $2,750 amid what could be a volatile week for the crypto.

However, analysts suggest that low gas rates could indicate a low price.

“Each time ETH gas rates have bottomed out it has often indicated a mid-term price minimum,” he said Ryan Lee, chief analyst at Bitget Research.

SPECIAL OFFER (Sponsored) Binance Free $600 (Exclusive to CryptoPotato): Use this link to register a new account and receive an exclusive welcome offer of $600 to Binance (full details).

2024 LIMITED OFFER on BYDFi Exchange – Up to $2888 Welcome Reward, Use this link to register and open a 100 USDT-M position for free!