Ethereum's gas fees have fallen to their lowest level in five years, according to a new analysis by cryptocurrency analytics firm Kaiko.
The decrease in transaction costs has significant implications for Ethereum, primarily affecting the coin’s supply dynamics. Lower gas fees result in less ETH being burned, which increases the coin’s circulating supply. Since April, Ethereum’s total supply has been increasing, which, according to the report, poses challenges for future price growth.
Despite some demand-boosting factors, such as the launch of spot ETH ETFs, increased supply could dampen potential price increases in the near term, analysts say.
Kaiko’s report also looks at broader macroeconomic conditions in addition to Ethereum’s performance, particularly the evolving landscape around the Fed’s monetary policy. Following the sell-off that markets experienced on August 5, the belief that the Fed may be behind the curve and should cut interest rates more aggressively has gained strength. Markets are currently pricing in a rate cut of up to 100 basis points this year.
Last week, lower-than-expected inflation data from the US has reinforced expectations of a rate cut in September. However, Kaiko’s analysis highlights that rate cuts do not necessarily mean easing monetary policy. If inflation falls at a similar or faster pace as the Fed cuts nominal interest rates, real interest rates adjusted for inflation could remain stable or even rise.
*This is not investment advice.