The good news for ETH hodlers about insane gas fees

Feb 5, 2021 | CoinTelegraph News | 0 comments

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Galloping gas fees are hurting the average user but Grayscale and Ethereum advocates can see the bright side.

Ethereum and DeFi proponent Ryan Sean Adams has drawn attention to how high gas fees relative to the current Ether price could actually be a bullish sign. 

Citing this week’s Grayscale research paper ‘Valuing Ethereum’ the Bankless commentator claimed that Ethereum is “actually getting cheaper” from a price to sale ratio aspect.

A price to sales ratio (P/S) is usually calculated by taking a company’s market capitalization and dividing it by revenue from sales. In this case, taking Ethereum’s $184 billion market cap dividing it by the total revenue derived from transaction fees provides a similar metric. The lower the P/S ratio, the more attractive the investment (although there’s debate as to how applicable it is to decentralized digital assets.)

According to the Grayscale report, Ethereum’s P/S ratio at the start of 2021 was the lowest it has been for over three years at around 0.02.

While Ethereum is not a company, and transaction fees are not technically revenue, institutional-grade investment vehicles such as Grayscale often use traditional methods to help value assets. The report said:

“A lower ratio indicates that the network is generating high revenue relative to Ether’s historical market capitalization, and thus may be undervalued.”

Given the enormous effort going into reducing ETH fees with Eth2, layer-two scaling and the Ethereum Improvement Proposal EIP-1559, this revenue is also far from guaranteed into the future.

However, high transaction fees are indicative of high demand on the network, which is good news for miners and long term holders (if not for those wanting to use it on a daily basis.)

According to BitInfoCharts, the average Ethereum transaction fee has skyrocketed to an all-time high of around $23. This makes using the network totally unviable for smaller transactions which eliminates a lot of DeFi activity for the average trader or investor.

Grayscale and Ethereum advocates, on the other hand, see the positive aspects:

“We can observe from the data that the price of Ether tends to move with underlying activity on the network […] multiple metrics are reaching new highs, including active addresses, hashrate, and network fees – a positive sign for investors.”

Grayscale also suggested that the gas-lowering EIP-1559 could create a positive feedback loop which is extremely bullish for ETH prices.

News Source from CoinTelegraph.com

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