The average price to commit a transaction on Ethereum shot up amid hysteria for a meme coin last week. It remains high, as of this writing.
According to data from online publication The Block, the average transaction price on the world’s second biggest blockchain is $15.63, up from $9.52 a week earlier. The total number of transactions occurring in ethereum’s network has declined by 5% to 1,145,565.
A Liquidity Problem
High transaction fees serve an important purpose in Ethereum’s ecosystem. They can artificially decrease sell pressure on the token by acting as a deterrent for ether holders who might want to offload their holding in crypto markets.
As it is, the blockchain is already losing its backers at a rapid clip. Ethereum-related funds witnessed outflows of $19.2 million for the week ending May 2 based on data from investment firm Coinshares. Since the beginning of this year, investors have pulled out a total of $24 million from ethereum funds.
Meanwhile, the choreography of a meme coin-induced euphoria and congestion manufactured a price jump for ether. As of this writing, it is changing hands for $1,912.55, up 5% from the beginning of this month.
Profiting from High Transaction Fees
High prices are a time to carve out profits. The biggest slice will go to the Ethereum Foundation, a Switzerland-based non-profit responsible for the blockchain’s development. It is reported to have transferred nearly $30 million worth of ether to Kraken, a cryptocurrency exchange, yesterday. The transfer sparked speculation that it might soon unload its holdings to take advantage of the price increase.
The foundation has taken advantage of market conditions in the past. It sold ether near its peak in in May and November of 2021. Notably, those sales were also preceded by high transaction fees and chatter that hyped ether’s prospects.
For example, Ethereum’s transaction fees skyrocketed to a record high of $53.14 on 03 November 2021 as its price began climbing towards $5,000. It touched $4,815, the highest price in ether’s short history, five days later. The foundation was reported to have moved 20,000 ether to Kraken at the beginning of the month.
Similarly, transaction fees touched a six-month high of $43.57 on May 15, 2021. Again, the foundation move in on the action quickly and transferred 35,000 ether tokens to Kraken – apparently, its favored exchange to conduct these transactions – on May 17.
In both cases, ether prices entered a months-long slump after the top. It is worth mentioning here that ether is a pre-mined cryptocurrency, and the foundation is one of its biggest, if not the biggest, holders.
Bumping Rewards Higher
Another sign of end times for ethereum is the seismic increase in rewards on its blockchain. Less than a month ago, the blockchain was offering a rewards rate of slightly more than 4% in the run up to the Shapella upgrade – an event that allowed investors to unstake their ether tokens. Yesterday, the rewards rate skyrocketed to 8.8%. As of this writing, it is 7.7%.
The blockchain has not announced further technical upgrades that make it more efficient or fast in handling transactions. In fact, it continues to be plagued by the same scaling problems as it was two, even five, years ago.
About the only change in its ecosystem is its issuance rate. It has declined precipitously in the last week. Fewer numbers of an asset with value should translate to more demand and higher prices. But ether is useless, except when it is used in speculation.
Who Wins?
Beneficiaries of an increase in its price include rich venture capitalists and investors. Those who have invested at Lido, Ethereum’s biggest staking platform, and its governance token LDO will further multiply their gains.
Lido withdrawals will begin in the next week or so and the rewards bump will enlarge their rewards pie. Some decentralized autonomous organizations (DAO) allow their holders to have a claim on the organization’s cash flow and assets. If Lido has offered similar “bespoke arrangements” to its holders, then LDO holders might be sitting on an ether gold mine.
All of this action is contingent upon ether’s prices moving higher. The developments cataloged above are telegraphing a different price trajectory for the token.
Bitcoin Fees Also Remain High
Over on the other side of the crypto pond, bitcoin’s transaction fees also remain high. They spiked to $9.601 on 5th May, an increase of 290 percent from the end of last month, and are down only marginally to $8.8 as of this writing. The chances that they will go down soon are slim because the size of the cryptocurrency’s memory pool, the place where miners pull out transactions from, is still climbing.
This is good news for miners because high transaction fees become a source of revenue for them during a time when bitcoin price remains hemmed into the $28,000 range. There are also no immediate catalysts to push its prices higher.
Binance stopped withdrawals of bitcoin in the chaos of high fees this morning and resumed them two hours. As always, there is the question of how an unregulated exchange can arbitrarily decide to stop withdrawals to prevent price drops. But capricious exchanges are part of crypto’s caveat emptor.