How Ethereum fees, ETH may be affected by these movements
- An increase in inter-chain transfer could temporarily increase ETH transaction fees.
- Volatility increased, meaning ETH’s value could decrease further.
Over the last few weeks, a significant amount of Ethereum [ETH] has been moved from the Mainnet into other chains. The movements within the Ethereum network have been closely linked to the attention given to a number of Layer Two (L2) projects.
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This, in turn, has reduced activity on the Ethereum Mainnet as previously reported. Furthermore, the recent trend has raised questions about the potential impact on the network.
For CryptoQuant’s author and community manager Woominkyu, the decrease in network activity does not mean that Ethereum fees will be reduced.
In his analysis, he opined that the movement of the altcoin into other chains could temporarily increase transaction fees. By looking at the ETH inter-chain transfer, the chart shared by Woominkyu showed that the metric had significantly increased.
However, the analyst did not highlight the effect on fees alone. He also explained how the movement could affect ETH’s short-term volatility. His publication read,
“This could temporarily increase Ethereum Mainnet’s transaction fees and cause short-term price volatility, especially if major liquidity providers are shifting to other chains. However, these fees might decrease following such substantial ETH movements.”
Typically, volatility in gas fees requires a surge in interaction with smart contracts or decentralized Applications (dApps) on the Ethereum blockchain. So, it may not be surprising that fees and ETH’s volatility were projected to be higher in the coming days.
Interestingly, this was coming at a time when the total daily fees on the Ethereum blockchain reached a six-week low.
Total daily fees on Ethereum reached a 6-month low on Sunday, registering at 1.72k $ETH. Could this be a sign of investor caution in today's market landscape?
Dive deeper into the data?https://t.co/af9A4ahkBq pic.twitter.com/XiMapAQvx2
— IntoTheBlock (@intotheblock) August 28, 2023
And this was a result of the low congestion on the network. This decrease also affected the revenue negatively. At press time, Ethereum’s revenue had also fallen to $2.3 million, a 22.3% decrease in the last 30 days, according to Token Terminal.
As per volatility, Santiment showed that ETH had exited its contracting state, and was on the verge of reaching extremely volatile levels. While high volatility creates the possibility for higher returns, it also extends to a possible downward movement.
Realistic or not, here’s ETH’s market cap in BTC terms
But for ETH, the latter could be the case if the volatility continues to increase. This was because of the fear currently in the market, and caution being taken by prospective buyers. Additionally, ETH’s exchange inflow spiked on 27 August.
As a metric used to measure the movement of assets from non-exchange wallets to exchange wallets, the increase suggests that another round of sell-offs may be on the cards.