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By Matt Webb
In the last half-year, the Ethereum blockchain has faced notable fluctuations in price and popularity. This shift has seen market participants gravitate towards more centralized alternatives such as Solana, as well as Ethereum's Layer 2 solutions including Base, Arbitrum, and Optimism. This change is largely attributed to the ongoing concerns about Ethereum's high transaction fees and the viral trends of meme coins on platforms like reddit and Twitter. The focus on speculative, high-risk investments over those with solid, practical applications explains this shift in interest. Historically, overhyped tokens with inflated Fully Diluted Valuations (FDVs) were marketed to retail investors who often ended up with depreciating assets as market whales dumped their holdings, leading to suppressed price increases.
Stalled Momentum for Ethereum?
Since the bull market commenced in September 2023, Ethereum has experienced minimal price action, which deviates from its usual pattern where it follows Bitcoin's lead. The apparent stagnation can be linked to the prevailing notion that trading altcoins on Ethereum is prohibitively costly for average investors. With transaction fees sometimes exceeding $100 for Swaps, the current cycle has witnessed a migration of developers and market participants to more economically feasible platforms, such as Layer 2 networks and Solana. Illustrated in Figure 1,
(Figure 1: Average Base Gas Fee - Wevr)
from October 30th through early January, Ethereum's transaction fees soared, averaging over 40 gwei on most days. This pricing barrier significantly hindered on-chain trading activities for retail investors, especially those managing smaller investment portfolios, a situation further emphasized in March of this year.
These high gas fees are also correlated to the increased traffic on the Base layer Two blockchain over the past 2 months.
(Figure 2 Average Daily Transactions β basescan)
As seen in Figure 2, a massive increase in transactions and activity within the Base Layer 2 blockchain occurred in March, which also coincides with the time when Ethereum had extremely high gas fees.
Can we expect this trend to continue?
Now more than ever have meme coins been relevant, and with layer twos and Solana becoming more accessible to retail investors we expect this trend to continue with layer Twos garnering more and more TVL and unique addresses over time.
Author Bio
I've been in crypto since 2016 and love on-chain research!
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The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.