Ethereum implements a charge for transactions known as gas fees. These fees vary and recently had a huge spike in their cost. Below, we discuss what this means for the cryptocurrency.
When a transaction is made on the Ethereum blockchain, the fee charged is known as the gas price. This can vary depending on several factors, usually determined by how busy the network is. However, these fees recently saw a huge surge, suggesting the blockchain is more popular than ever. In the following article, we discuss what the fee increases signal for the future of Ethereum.
Ethereum’s Gas Prices
Despite pressure from several competitors, Ethereum remains the blockchain of choice for smart contracts. This has recently been observed with a huge increase in on-chain activities. The more use the blockchain has and the more complex transactions are, the more inevitable the rise in gas fees becomes.
In the final week of September, Ethereum saw $45 million in weekly fees. It was the largest amount since June 10th, with the biggest increase happening between the 24th to the 26th of the month. While the gas prices spiked, the volume and count remained the same. The average fee was pushed above $5. This means the most likely cause is the complexity of the transaction taking place.
One of the repercussions of this was that Ethereum went deflationary for a short period of time. This is when the price for services is falling. However, it has now entered back into inflationary periods. This is the first time it has happened since the Dencun upgrade, the purpose of which was to reduce fees and increase the speed at which transactions could be made.
Ethereum’s September
The month seems likely to close on a positive note for Ethereum. After a tepid August, it regained some footing in September increasing by over 55%. ETH has been in a descending parallel channel since the upgrade. Recent bounces have been created with a three-day RSI that has allowed it to break out from a resistance trend line. This usually happens before price breakouts.
Analysts have also noticed a fractal occurring. This is identical to the one that happened between January 2023 and March 2024. Both of these factors could see Ethereum break the $3,500 resistance area. It may even start to head up towards its all-time high of $4,868.
Addresses and DEX on the Increase
Ethereum addresses are increasing and could be one factor contributing to the rising fees. New addresses have risen by around 43% with active daily users increasing by 29%. This suggests that more users are on the network carrying out simultaneous actions. When networks are active it becomes harder to make verifications, pushing up prices.
Another factor is the increasing level of DEX volumes. A decentralized exchange is a peer-to-peer marketplace. Here, people can trade and invest in currencies directly without the need for an intermediary to transfer funds. ETH being traded on these exchanges has also increased with around $8.38 billion being traded in the last week. DEXs play a huge part in blockchain activity, so an increase there congests the network and hikes costs.
ETH Flows
Another factor could be that staking flows are also shaping the price of gas fees. For the past few months, outflows have been the talk of the town. It is certain these have led to a tepid response from investors towards ETH. However, inflows have now managed to balance outflows. With more interest in staking, more transactions begin to take place.
Staking is the process of locking up tokens in a blockchain network. This yields rewards, which are usually a percentage value of the tokens that have been staked. It is also how people earn the right to be part of proof of stake blockchains. After the previous crash, the amount being staked dropped. Yet it has now returned to its previous highs.
Is This Likely to Increase the Price of Ethereum?
While all this network activity is increasing the price of ETH, it does show one thing: That the Ethereum network is a technology that is alive, being used regularly and with increasing complexity, and that this can only be a positive sign for Ethereum itself.
Some analysts are predicting that it could hit $10,000 by next year. This is down to data from exponential moving averages, a relative strength index, and a long-term Fibonacci retracement graph. These follow similar patterns to those seen in 2017 – 2018 and 2020 – 2021, both of which had strong bull runs occur after them. If it can get this momentum behind it, it could reach levels of $6,978 and possibly upwards of $6978.
There are still those who advise caution. Part of this is down to the large transactions that have been carried out by several Ethereum whales. A total of $53.6 million was recently transferred by them, heralding whispers of large dumps. If more of these occur, then it could mean these positive signs are not enough and a sell-off could be possible. However, this is a moot point. With prices increasing and signs positive, it is highly unlikely whales would want to sell until prices have increased significantly.
Gas prices will always fluctuate, as is the nature of Ethereum. As it increases in popularity, so will its fees. However, Ethereum itself is making major changes to reduce these costs. This means there may still be some time before an equilibrium is reached. However, these changes show that Ethereum is still the main blockchain, competitive against others and still has value. That means now is as good a time as ever to invest.
