A recent report published by Kaiko analysts states that the drop in gas fees on the Ethereum network is impacting the total supply of the cryptocurrency, which reflects a notable increase since April.
According to Kaiko Research, the Ethereum ecosystem has seen significant changes in recent months, particularly when it comes to gas fees and the total supply of ETH.
Analysts recently reported that, with gas rates reaching five-year lows, the total supply of ether has been rising, because low fees mean less ETH is burned, they noted in the report.
Ethereum Gas Fees at All-Time Lows
Ethereum gas fees, which represent the cost of transacting on the blockchain network, have dropped dramatically thanks to growing activity in Layer2 solutions and the recent upgrade Dencun, who have optimized transaction fees. This decline has led to a decrease in ETH burning, the process by which a portion of the token supply is removed from circulation. As a result, the total supply of ETH has started to increase steadily since last April.
According to Kaiko, this increase in supply raises questions about the balance between supply and demand in the market. As less ETH is burned, inflationary pressure on the token could increase, which could dampen any potential demand-driven price surge.
“This fee reduction has implications for ETH, as lower fees mean less ETH is burned, increasing the supply of the token. Consequently, the total supply of ETH has increased steadily since April. “Despite demand drivers such as ETH spot ETFs, this growing supply could dampen potential near-term price increases.”, reads in the report.
The crypto community is divided regarding the analysis carried out by the on-chain data platform. Several users on X commented that the drop in Ethereum gas fees could be beneficial for users as they facilitate access to the blockchain network. On the other hand, there are those who agree with Kaiko and warn that an increasing supply could lead to a devaluation of the ETH price short term.
The implications for ETH demand
Despite the increase in ETH supply, Kaiko analysts also highlight that there are several factors that could drive demand for the cryptocurrency. One of the most significant developments in the crypto market has been the growing interest in ETH-based exchange-traded funds (ETFs).
These investment products, which are listed on major stock exchanges around the world, have attracted the attention of retail and institutional investors, which could put upward pressure on the ETH price in the future. Recently, the ETF provided by BlackRock, the IShares Ethereum Trust, reached $1.000 billion in net inflows, highlighting the market's interest in this digital asset.
However, while spot ETH ETFs have been a driver of demand in the market, increasing supply could offset its effects, Kaiko analysts argued. While institutional interest may be a positive factor, the continued increase in ETH supply could limit the cryptocurrency's price growth potential.
On the other hand, falling gas fees could encourage greater activity on the Ethereum network, which in turn could lead to an increase in the adoption of decentralized applications (dApps) and smart contracts. If activity on the network increases, this could generate greater demand for ETH, balancing the impact of the increased supply of tokens, they explained.
In summary, the analysts noted that the drop in Ethereum gas fees and the corresponding increase in the cryptocurrency's total supply present both opportunities and challenges. On the one hand, lower gas fees can facilitate access to the network, but on the other hand they can also contribute to an increase in the supply of ETH and limit its potential for value growth in the short term.
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