Ethereum Gas Fees Hit Five-Year Low Amidst Shift to Alternative Blockchains and Network Upgrades

Ethereum's gas fees have hit a five-year low this week. Some experts think this drop is because users and apps are moving to more popular blockchains.

Analyst Ryan Lee points out that historical data shows a link between low gas fees and rising ether (ETH) prices. He states, “Every time ETH gas fees drop to rock bottom, it often signals a price bottom in the mid-term.”

When gas fees are low, ETH prices tend to rebound. And if this coincides with interest rate cuts? Well, that opens up even more possibilities for the market.

Gas fees are the costs users pay to execute transactions on the Ethereum network. Earlier this week, fees fell as low as 0.6 gwei. For low-priority transactions, fees were just 1 gwei or less. That’s a rare occurrence these days! This drop represents a massive decline of over 95% from the 83.1 gwei levels in March when network activity peaked.

According to Lee, this decrease in fees is likely due to a lack of demand for Ethereum's block space. More users are choosing faster and cheaper blockchains. He explains, “The drop in Ethereum’s gas fees to a five-year low can be attributed to the migration of meme season and Dapp interactions to other platforms, as well as the long-awaited Dencun upgrade that improved network efficiency and reduced gas fees.”

The Dencun upgrade consists of two major updates from March that changed how transactions are processed on Ethereum. Since July, the Solana-based app Pump has even made more in fees than the entire Ethereum network on a few occasions, most recently on August 13.

Additionally, since lower fees mean less ether (ETH) is being burned, the token's supply has started to increase. Recent data shows that nearly 16,000 ETH—worth about $42 million—was added to the total supply over the past week. This puts the supply on track to grow by 0.7% this year.