Ethereum Transaction Fees Plunge 90% Year-on-Year Amid Market Downturn

Bitcoin and Ethereum transaction fees have seen a dramatic decline, with costs dropping over 90% year-on-year. This significant reduction is primarily due to a decrease in user activity on both networks, as fewer individuals are sending transactions and engaging with smart contracts. Ethereum transaction fees have reached their lowest levels since 2020, averaging around $0.168 per transaction. This drop is a direct result of reduced user activity, with fewer individuals sending Ether and interacting with smart contracts.

The decline in fees coincides with broader market challenges. Following the announcement of sweeping tariffs by the U.S. President on April 2, both traditional and crypto markets experienced downturns. Over the past 14 days, Ethereum's value has fallen by more than 12.5%, lingering just below $1,600. Traders are exercising caution, waiting for global economic uncertainties to stabilize before increasing their transaction frequency with Ether and altcoins. The heightened sensitivity among retail investors towards Ethereum discussions and economic news, as the asset nears critical support levels, has also contributed to the current lull in transactions.

Looking ahead, the Pectra upgrade for the Ethereum network is scheduled to launch on May 7. This upgrade aims to double the layer-2 blob capacity, reduce transaction fees, and allow fees to be paid in stablecoins like USDC and DAI. Additionally, the maximum staking limit will increase from 32 ETH to 2,048 ETH. The Pectra upgrade follows the Dencun upgrade in March 2024, which had already reduced transaction fees for layer-2 networks and improved the economic landscape for Ethereum rollups. The second phase of Pectra is anticipated in late 2025 or early 2026, introducing enhancements aimed at improving scalability and data storage efficiency.

The recent drop in fees has led to a decrease in the need for bidding, resulting in lower average fees. This trend is expected to continue as the market stabilizes and user activity increases. The upcoming upgrades to the Ethereum network are likely to further reduce transaction fees and improve the overall efficiency of the network. As the market recovers, traders and investors are expected to increase their transaction frequency, leading to a potential rise in fees. However, the long-term impact of these upgrades on transaction fees remains to be seen.