Ethereum Fees At Lowest Since Nov. 2022, Bottom Signal?
Data shows that the last time the Ethereum transaction fees dipped towards lows this deep, the cryptocurrency’s price reached its bottom.
Ethereum Average Transaction Fees Has Dropped To Just $1.13 Now
According to data from the on-chain analytics firm Santiment, the cryptocurrency has observed particularly low fees this week. The “average fees” here refers to a metric measuring the average fees (in USD) the users attach to their Ethereum transfers.
Generally, this indicator’s value depends on the traffic the ETH network receives. Whenever the mempool is congested with transfers, some transactions may be stuck waiting for long, as the validators only have a limited capacity to process the transfers.
Those who want their transfers to go through as soon as possible may attach higher-than-average fees so the network prioritizes them. As such, periods of high activity can lead to the average fees shooting up as users try to outcompete each other in getting their transactions through first.
However, such an incentive only exists in times of low traffic, so the average fees can fall to low values, as senders no longer have any reason to attach significant amounts with their transfers.
Because of this relationship between the fees and network activity, the indicator’s value can provide a look into whether the blockchain is seeing high usage. Now, here is a chart that shows the trend in the Ethereum average fees over the past year or so:
It looks like the value of the metric has hit lows in recent days | Source: Santiment on X
As displayed in the above graph, the Ethereum average fees have declined over the past couple of months and have hit pretty low values recently. This suggests that activity on the network has been cooling off.
After the latest drawdown in the indicator, its value has hit the $1.13 mark, the lowest that the metric has been since November 2022. Interestingly, back then, the coin had freshly faced the FTX crash, and coinciding with this low in the fees, the price had found its bottom.
If this previous pattern is anything to go by, then the recent plunge in transaction fees could also help the cryptocurrency discover its bottom.
As for why low fees can pave the way for a bottom, Santiment notes that a more affordable network can usually lead to the rising utility of the digital asset. This fresh activity that may arise as investors become encouraged to move can sometimes help the price display a rebound.
It remains to be seen whether the Ethereum price will hit its bottom in the coming days or if the coin will have to face further drawdown.
ETH Price
At the time of writing, Ethereum is trading at around $1,600, down 1% in the past week.
ETH hasn't moved much in the last few days | Source: ETHUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, Santiment.net
