How will this affect the price of Ethereum during the next rally?

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Why Ethereum’s cheap gas fees have a two-pronged future scenario

During the DeFi and Yield Farming frenzy, no other blockchain network enabled more transactions than Ethereum. Everyone sought to participate in multiple DeFi protocols, which resulted in massive network congestion.

Transaction gas taxes increased automatically, and it has been one of the issues that many have addressed in recent months. The question of scalability has come up again and again as various networks have attempted to tackle the congestion problem.

However, at the time of publication, Ethereum appeared to be once again cheap.

Ethereum gas fees drop; so are active users coming back?

According to latest Santiment statistics, average gas costs on the ETH network have now decreased to $2.19, the lowest sum since the beginning of December 2020. During a brief period in May, Ethereum users paid excessive sums of $65 on average, highlighting the major flaws in ETH’s existing scaling method.

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At press time, the current reduction in gas costs showed that Ethereum’s utility can increase without much difficulty, as users would be more willing to utilise the network with the present cheap gas fees. Fees will not impede healthy token circulation, but do low gas fees guarantee that Ethereum will resume high levels of activity?

The competition is not the same anymore

Change and innovation are continuous aspects in the crypto business, and it is fair to argue that other networks have absorbed some of Ethereum’s traffic in recent months. Now, ETH’s current attempt to adopt EIP-1559 will be focused on a fixed price and resolving the gas fee issue, but other L2 scaling alternatives have truly risen in activity and stature over the last few months.

Polygon overtook Ethereum with 73,000 daily unique active wallets in Q2 2021, according to data, and its growth rate was more than 13,000 percent over the previous year. During the preceding quarter, Matic also recorded $4 billion USD in Total Valued Locked, or TVL.

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No, PancakeSwap was driving Binance Smart Chain’s DeFi area with 2.13 million unique wallets in June 2021, while consumers were gradually enjoying the cheaper option with Polygon’s L2 solutions. From Q1 to Q2, the TVL rose by a staggering 32.8 percent.

These data support a widely held belief: consumers may not return to Ethereum just because transaction costs have been reduced.

How does it impact Ethereum’s price in the next rally?

Despite its higher transaction costs, Ethereum’s value increased significantly throughout the bull run. In terms of volatility performance, it remained ahead of Bitcoin, but it may not be able to accommodate to the same level of activity in the approaching surge.

Transfer volumes supported by Ethereum have considerably decreased since the May crisis, and only time will tell if its reduced gas prices will be sufficient to restore a high level of activity in its ecosystem.

 

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