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Declining Ethereum Gas Fees Are Causing a Significant Increase in ETH Supply: Kaiko Report

Key Points:

Ethereum gas fees have reached a five-year low, influenced by increased Layer 2 activity and the Dencun upgrade.
The decrease in gas fees means less ETH is burned, leading to a consistent increase in the total supply of ETH since April.

According to Kaiko, Ethereum has recently hit its five-year minimum of fees due to the rise in the number of layer 2 activities and the implementation of the Dencun update in March.

Ethereum Gas Fees Affect ETH Supply

The Dencun upgrade allowed layer 2 networks to process their data blobs directly on the Ethereum mainnet, resulting in a notable decrease in Ethereum gas fees.

The fall in Ethereum gas fees bears big implications for Ethereum (ETH). Given that less money is lost to fees, even less and less ETH is now expected to be burnt, effectively increasing the total supply of the token positively.

Starting in April, the total supply of ETH has been increasing unabated. Hence, even strong demand factors like listing spot Ethereum ETFs may be countered by price-inhibiting supply increases in the near term.

Gas fees are paid in Ether or its more minor denomination, Gwei. This is to compensate the validators for securing the Ethereum network. These fees are pegged to supply, demand, and network capacity, usually rising during congestion periods.

Whale Activity Drops Off Amidst Market Volatility

On the other side of things, new data has been pointing toward Ethereum whale activity seeing a decline as well. According to Santiment, transactions of at least $100,000-worth of ETH fell drastically, from 5,371 on August 12 to 2,138 at press time.

As per Kaiko’s report, overall financial conditions also bled into the market. When the Bank of Japan raised some of its policy rates in late July, financial markets took that as a cue for higher volatility.

In justifying a major sell-off at the beginning of August, trading volumes on Japanese crypto exchanges such as Bitbank and Bitflyer surged to their highest levels since early March when Bitcoin set new record highs.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

Harold

With a passion for untangling the complexities of the financial world, I've spent over four years in financial journalism, covering everything from traditional equities to the cutting edge of venture capital. "The financial markets are a fascinating puzzle," I often say, "and I love helping people make sense of them." That's what drives me to bring clear and insightful financial journalism to the readers of Coincu.