Bullish Signal? Ethereum Average Fees Declines 69% Since Early May

On-chain data shows the Ethereum average transaction fees have dropped by almost 70% since early May. Here’s what it may mean for the asset.

Ethereum Average Transaction Fees Has Sharply Declined Recently

According to data from the on-chain analytics firm Santiment, the average fee on the network was around $14 not too long ago. The “average transaction fees” here naturally refers to the total amount of fees (in USD) that the average user is attaching with their transfers right now.

This indicator’s value is dependent on the amount of traffic that the Ethereum network is receiving currently. Whenever the traffic on the blockchain is low, the users have no need to attach exorbitant amounts of fees as the network usually has enough capacity to handle the transactions quickly anyway.

In times of congestion on the network, however, the competition to get transfers through can be quite high. As the chain only has a limited capacity to process transfers, the transactions with the highest amount of fees are prioritized.

Naturally, senders who want their transfers to go through as quickly as possible attach a higher fee than the competition. Others may also follow suit, and so, the average fees on the network can shoot up.

Now, here is a chart that shows how the average fees on the Ethereum blockchain have changed during the last month or so:

The value of the metric seems to have observed a large degree of decline in recent weeks | Source: Santiment on Twitter

As shown in the above graph, the Ethereum average fees had surged to pretty high values in early May. This increase in the metric coincided with a rally in the asset’s price towards the $2,000 level.

Rallies usually attract a high number of eyes to the coin, so it’s not unexpected to see the network become congested in such periods. A high fee can even be a positive sign for a rally, as it suggests that the blockchain is currently facing a high amount of transfer activity.

Such high transaction activity implies the presence of a large number of active traders in the market, which is what’s needed to sustain sharp price action like a rally.

After the rally topped out, the indicator also started declining and has since hit a value of just $4.28. This is around 69% less than what was observed during the top when the average fee was about $14.

Naturally, the current relatively low fees would imply that there isn’t much activity taking place on the Ethereum blockchain at the moment. While such low attention on the coin can be negative for any sustainable price move to build, it’s also true that low fees mean that the users would be more likely to use the chain for utility purposes, as it would be affordable to do so.

ETH Price

At the time of writing, Ethereum is trading around $1,800, up 3% in the last week.

Looks like ETH has been moving sideways recently | Source: ETHUSD on TradingView

Featured image from Michael Förtsch on Unsplash.com, charts from TradingView.com, Santiment.net