Why is Ethereum Gas Fee Cheap Again?

Transaction costs on the top-ranked smart contract network have reached their lowest level in more than nine months.

Key Takeaways

• The amount of Ethereum needed to process transactions has fallen 94% since January.

  
  

• Ethereum’s low gas fees are due to the reduced demand for block space.

  
  

• Historical patterns show that when the median cost of using the Ethereum network reaches record lows, the price of Ethereum typically rises.

Ethereum’s gas fees have hit their lowest point in more than nine months.

While decreased network activity was the main reason for the drop, the number of unique active users on Ethereum remained stable.

Ethereum activity decreases

The cost of using Ethereum is hitting record lows.

According to data from data analysis website Nansen, gas fees hit a low of 10 gwei today.

The average transaction cost over the past few days has been 12 gwei, which is equivalent to about $0.67 for a peer-to-peer ETH transfer.

To put this number into perspective, in January, the average gas cost for Ethereum was as high as 218 gwei, which indicates that the amount of Ethereum required to process a transaction has dropped by 94%.

The drop in gas fees on the network is due to a decrease in demand for Ethereum block space.

Since blocks contain only a limited amount of space for transactions, during periods of high congestion users increase the price they are willing to pay to have their transactions processed in the next block.

However, when activity decreases, the network lowers the gas fee required to reflect demand.

NFT marketplace OpenSea has been one of the largest gas users on the Ethereum network in recent months, but activity has declined in recent weeks.

According to data from TokenTerminal, OpenSea processed $67.5 million worth of transactions on March 13, down 70% from its peak in February.

OpenSea isn’t the only Ethereum application to see a drop in activity.

Uniswap , the most popular decentralized exchange on Ethereum, has seen a steady decline in trading volume since November last year.

On March 12, the exchange’s trading volume hit a multi-month low of $799 million.

By comparison, at its peak on November 10, the exchange processed a massive $8.8 billion worth of trades in 24 hours.

Despite the decreasing demand for Ethereum block space, the number of wallets actively using the network does not appear to be decreasing.

According to Messari data, the number of unique active Ethereum addresses has remained above 500,000 and has not reached the lows observed in the summer of 2021.

Ethereum unique active addresses (Source: Messari)

Since the number of unique active users on Ethereum remains the same, this means that users are still transacting on the network, just less than before.

For many Ethereum power users, low gas fees can be a good thing.

Since online trading is now cheaper, traders are able to take advantage of smaller arbitrage opportunities, thereby improving capital efficiency.

Lower gas fees are also friendly to more casual users, and the cost of purchasing and listing NFTs on platforms such as OpenSea has become very cheap.

Users who are waiting for airdrops or need to receive rewards will be able to avoid burning through their profits as they did when fees reached all-time highs.

Although gas fees are low, they may not remain that way for long.

Judging from historical patterns, whenever the median cost of using Ethereum reaches a record low, it usually recovers due to Ethereum's price increase, and it remains to be seen whether a similar event will happen soon.