The world’s second-largest cryptocurrency, Ethereum (ETH), concluded May 2023 on a relatively flattish note, with the current trading price hovering around $1,850. Nevertheless, significant changes in transaction gas fees occurred during this month, providing a fresh perspective on the future of the crypto landscape.
According to on-chain data provider Santiment, Ethereum’s gas fee experienced a dramatic 70% reduction within a month’s time. In early May, Ethereum gas fees reached the 2023 high of $14, only to plummet under $5 by May’s end. Santiment asserts that the decrease in average fees makes ETH transactions more affordable, promoting increased utility for the digital asset. Furthermore, self-custody’s significant role leaves the number two cryptocurrency at an all-time low of 9.9% on exchanges.
In the past, different asset classes triggered surges in Ethereum gas prices. The ICO boom in 2017-2018, for instance, contributed to 40% of the gas on Ethereum, as a result of extensive ERC-20 token transfers. However, once demand for ERC-20 tokens waned, decentralized finance (DeFi) took the crypto world by storm in 2020, peaking between June 2020 and 2021, and accounting for 30% of Ethereum’s gas fees. Though DeFi tokens have generally underperformed recently, on-chain crypto analyst platform Glassnode claims, “investments into DeFi have been complex, recording remarkably poor token price performance over the recent years.”
By mid-2021, non-fungible tokens (NFTs) gained significant traction, although demand for this asset class subsided by 2022. Further, Glassnode reports that the decrease in gas usage for stablecoin transactions reflects a shift in utility rather than dwindling demand. Stablecoins, such as those pegged to the USD, have witnessed a surge in popularity since 2020. According to Glassnode, stablecoins now function less as a payment method and more for hedging and as a store of value.
In conclusion, the substantial drop in Ethereum’s gas fees could signal a new era of affordability and accessibility for crypto users. By promoting a more inclusive environment, blockchain technology can reach more extensive market segments, with innovations like DeFi and NFTs shaping the digital asset landscape. While the short-term outcome remains uncertain, understanding the historical context and potential positives and negatives of these developments can help navigate the rapidly evolving world of cryptocurrency. Market research remains critical in determining the right investment approach, with personal financial responsibility ultimately lying with individual investors.
Source: Coingape
