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Memecoin frenzy: Transaction fees are absurdly high 😳

Tracking blockchain fees

May 12, 2023

12 May 2023

Hello,Looking at the world, sometimes it feels like we are living in a simulation. The crypto market is still bearish in spite of US CPI data coming in line with expectations. While Bitcoin (BTC) has been declining, some memecoins are still getting all the attention. PEPE was the flavour earlier this month, now the hype is about LADYS, thanks to Elon Musk’s tweet.

We continue to advise against wagering your bets on memecoins. But if we are indeed in a simulation, who are we to stop you? In our hot take today, we will focus on what this means to the blockchain fundamentally. A high transaction fees on both BTC and ETH rocked the crypto community last week - it’s not looking good at all. Let’s deep-dive.

Top-3 stories of the week:

1

Asset Manager Franklin Templeton has announced plans to add to its crypto market offerings a second blockchain fund.

and will focus on serving institutional investors, with the growing interest from mainstream financial institutions.

2

Leading stablecoin issuer Circle has rebalanced its treasury holdings amid growing concerns over a potential US debt default.

that favours short-dated US Treasuries and refuses to hold Treasuries that mature beyond early June.

3

PayPal’s cryptocurrency holdings skyrocket past $1 billion.

in customer-owned cryptocurrencies representing a 56% rise in customer crypto assets from the previous quarter, amounting to a $339 million increase.

The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

  • Total crypto market cap - $1.1 trillion - DOWN 7.3%

  • Bitcoin price - $26,650 - DOWN 10.7%

  • The dollar index (DXY) - 102 - UP 0.7%

  • Bitcoin Dominance - 46.8% - DOWN 0.6%

  • Crypto Fear and Greed Index - 49 - the market is in neutral condition

ICO CALENDAR

THE HOT TAKE

Transaction fees are skyrocketing, we have to take note

In the past month, memecoins have been the main narrative that the speculators are trading on and in addition to causing a surge in gas fees, a handful of traders have profited handsomely off their meteoric rises. ERC-based PEPE has been the torch-bearer of this rally and reached a market cap of $1.7 billion after news about it being listed on Binance. On the other hand, Bitcoin Ordinals via BRC-20 has rocked the Bitcoin market with ORDI token registering $90 million trading volume within 12 hours of listing. Daily BTC fees paid to process blocks have reached levels not seen since 2018.

Daily BTC fees

Source: Into the Cryptoverse

What’s more absurd is that, for one particular block, the transaction fees paid is higher than the block fees (6.25 BTC that miners earn currently). That’s a first! Miners are happy – the more the fees paid, the lesser the impact of halvings.

Ethereum fees are steep as well

Gas fees are charged for processing transactions on the Ethereum blockchain, and they have been rising at an alarming rate.

Ethereum per transaction fees (in US$) in 2023

Source: ycharts.com

The sudden onslaught of increasing gas fees has led to decrease in trading activity among small scale users, as it has become increasingly expensive to perform a simple transaction on the network. This has sparked a debate among developers, traders, and retail investors who are finding it difficult to participate in the Ethereum ecosystem due to the gas fees. Okay, so what is likely to happen now?

1) Users are demanding a change

This is not the ideal way to promote blockchain adoption. If users are unhappy, the developers will have to do something about it. While Ethereum already has a roadmap to reduce fees over time, some in the Bitcoin developer community has called for removing Ordinals from its network (link). However, tech changes in blockchain take time to evolve – we can be confident that some solution will be found to ease the network congestion over time though short-term pain can ensue.

2) Role of Layer 2s and Lightning Network

Layer 2 infrastructure already claim to have the scaling solution that Ethereum needs. Arbitrum, Optimism and Polygon are the top ones currently and are doing a decent job.

Lightning Network on Bitcoin does a similar job with Binance already contemplating integrating with its platform (link).

Now it leads us to the question – what should you do?

a) Be patient

Challenges with tech are not new. The great thing about tech is that it finds a way to solve itself over time. Blockchains (especially BTC and ETH) are here to stay but they need to be more scalable and convenient to its users. Continue to read up on the developments around this (Cryptogram newsletter will have you covered mostly as well) and take strategic calls in the medium term.

b) Understand the scaling solutions:

Scaling solutions can offer good value to users by negating some of the pain. They can be prime candidates for growth in the next bull run. Also, other top blockchains such as Cardano and Solana will claim victory with respect to gas fees but hey, they haven’t had that many memecoins going crazy on them yet have they?

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.