Ethereum’s Lower Gas Fees May Increase Supply Pressure Amid Historical Price Trends
Ethereum experienced a significant drop in gas fees to an all-time low on Saturday, coinciding with a rise in ETH supply. Despite this, global Ethereum ETFs saw only minor inflows of $4.2 million last week, while their US counterparts recorded outflows exceeding $14 million.
The current market situation suggests Ethereum may mirror a historical price movement after breaking through the lower trendline of a crucial ascending triangle. However, Ethereum faced a 3% decline on Monday following lackluster flows in ETH ETFs and the unprecedented lows in gas fees last week. This decline aligns with Ethereum’s attempt to replicate a price pattern observed in the past two years.
In the previous week, Ethereum’s average daily gas fee hit an all-time low of 1.06 Gwei on Saturday, as reported by Ultrasound.money. Gwei serves as the metric for transaction fees within the Ethereum network. The reduced gas fees also led to a decrease in the burn rate of ETH to 115 ETH on Saturday, according to CryptoQuant data. While historically, periods of extremely low gas fees have signaled price bottoms, the current market dynamics may differ due to the Dencun upgrade implemented on March 13.
The Dencun upgrade introduced blobs, enabling Layer 2 networks to post data on the Main chain at significantly reduced fees. Consequently, the burn rate of ETH, designed to counterbalance new issuances, continued to decrease. From April to August 2024, Ethereum’s total supply surged by over 220,000 ETH, contributing to a price drop of more than 30%. A sustained uptrend in supply could potentially impact ETH’s price negatively if demand remains stagnant or decreases, potentially explaining why Ethereum ETFs have not exerted significant influence on prices.
In the same period, Ethereum ETFs observed a net inflow of $4.2 million, as per CoinShares data. Although global inflows remained positive, US spot ETH ETFs experienced net outflows of $14.1 million. The subdued inflows signal cautious investor sentiment, evident in the choppy price movements and the ETH Fear and Greed Index sitting at 34.
Looking at technical analysis, Ethereum is currently trading around $2,570, down by over 3% on the day. The derivatives market indicates a prevailing bearish sentiment, with funding rates turning negative. This negative sentiment is reinforced by Ethereum breaching the rising lower trendline of an ascending triangle on the 4-hour chart, indicating a potential initiation of a dominant bearish trend.
Despite these bearish signals, indicators like the Stochastic Oscillator suggest a possible rebound for ETH after entering the oversold region. Conversely, the Relative Strength Index (RSI) signals a bearish move following a drop below its midpoint and moving average. Additionally, Ethereum faces resistance around a descending trendline on the daily chart, projecting a potential decline to the $2,000 to $2,200 range before a significant rally.
In conclusion, Ethereum’s recent market movements and technical indicators suggest a complex interplay between historical patterns, supply dynamics, and investor sentiment, shaping the cryptocurrency’s price trajectory in the near term.
