NewsletterEthereum Gas Fee Hits Four-Year Low After Dencun Upgrade, A Boon or Bane?
Highlights
- Ethereum Dencun upgrade has made ETH inflationary again and the burn rate drops significantly.
- Ethereum average gas fee has dropped to the levels last seen in 2020.
- Ethereum price continues to face selling pressure slipping all the way to $2,900.
In a major development, the Ethereum gas fee has touched its lowest level in four years since 2020. As of now, the average gas fee on Ethereum is 6.8 Gwei. As a result, all on-chain operations such as cross-chain bridging, asset swaps, NFT minting, etc. have turned out to be more affordable to users.
The Post Dencun Upgrade Effect for Ethereum
After the post-Dencun upgrade, which brought about blobs and enhanced network efficiency, there was a noticeable decrease in fees. This upgrade piqued developers’ interest in how gas prices might rise if market activity were to surge.
The Dencun upgrade has successfully disconnected Ethereum’s transaction fees from network activity, ensuring that fees remain low even during times of increased usage.
However, the latest report from CryptoQuant suggests that the Dencun upgrade has made the Ethereum blockchain inflationary once again. This has potentially killed its characteristics of being an “ultra-sound” money.
According to a report published on Wednesday by CryptoQuant, the Ethereum network has experienced a decrease in transaction fees following the Dencun upgrade. Consequently, the amount of ether burned has reached one of its lowest levels since the Merge.
Furthermore, the report highlighted that the supply of ether is currently increasing at its fastest daily rate since the Merge event on the Ethereum network.
🧵 The Dencun upgrade has made $ETH inflationary again. Is this the death of "Ultra Sound" money?
Let's dive into #ethereum ⬇️ pic.twitter.com/ljDPMeVHKu
— CryptoQuant.com (@cryptoquant_com) May 10, 2024
The Cryptoquant analysts noted: “Before the Dencun upgrade, the higher network activity on Ethereum meant higher fees burned and hence less ether supply. However, after the Dencun upgrade, the total amount of fees burned has decoupled from the network activity”.
The report’s findings suggest that, given the present level of network activity, Ethereum is unlikely to return to a deflationary state. Consequently, the narrative surrounding ether as “ultra-sound” money has likely faded, unless there is a significant increase in network activity to revive it.
ETH Price Action
The Ethereum (ETH) Price continues to remain volatile falling over 4% in the last 24 hours and currently trading around $2,900 levels. ETH has largely underperformed BTC in recent times and this could continue going further believe some market analysts.
The last 2 times that #ETH / #BTC broke down, #ETH / #USD then dropped approximately 70%.
In a world where everyone has been preaching Alt Season for the last 2.5 years into a #BTC dominance uptrend, I thought I would remind people that there is still downside risk. pic.twitter.com/63Pi8qKpLu
— Benjamin Cowen (@intocryptoverse) May 8, 2024
The ETH/BTC pair has breached its support level of 0.05, a pattern often signaling a forthcoming price decline. Should the ETH/BTC pair dip below 0.04, the analyst anticipates Ethereum’s price potentially plummeting to approximately $2,500.
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