The recently published “Q2 2023 Signals Report” by Fidelity Digital Assets presents a positive outlook for Ether (ETH) in the coming months and the long term. Fidelity’s analysis is based on several factors that contribute to the bullish stance on Ether.
One significant factor highlighted by Fidelity is the network’s higher burn rate compared to coin issuance. Since the Merge in September 2022, there has been a net supply decrease of over 700,000 Ether. This reduction in supply suggests a potential increase in scarcity and could have a positive impact on Ether’s price.
Fidelity also points to Glassnode data that shows an increasing number of Ethereum addresses engaging in transactions for the first time. This indicates healthy network adoption and suggests that more individuals and entities are utilizing the Ethereum network.
Additionally, the report reveals a 15% growth in the number of active Ethereum validators during the second quarter. These validators play a crucial role in ensuring the network’s security and decentralization. The increase in active validators is seen as a positive sign for the Ethereum ecosystem as it demonstrates the growing participation and commitment to the network’s operations.
The anticipated implementation of EIP-1153, a transient storage opcode, is another factor contributing to the positive outlook for the Ethereum network. This upgrade is expected to improve smart contract efficiency, reduce costs, and enhance the design of the Ethereum Virtual Machine. These improvements hold particular significance for decentralized exchanges (DEXs), which have seen Ethereum’s dominance decline over the past six months. The EIP-1153 upgrade could potentially help Ethereum regain some of its lost market share in the DEX space.
Furthermore, the upcoming Uniswap v4 upgrade has the potential to boost the Ethereum network’s bullishness. The upgrade will allow users to create various pools using programmable buttons and native ETH support. If combined with the approval of EIP-1153, it could help Ethereum address the issue of high gas fees and regain market share lost to competing platforms.
Challenges and Concerns
Despite the positive developments mentioned above, there are certain challenges and concerns that need to be considered when evaluating the future performance of Ether.
Decentralized application (dApp) activity on Ethereum has experienced a decline. Data from DappRadar shows a decrease in unique active wallets for popular platforms such as Uniswap, 1inch Network, MetaMask Swap, and OpenSea. In contrast, competing platforms like BNB Smart Chain’s PancakeSwap and Polygon’s Uniswap have seen growth in user activity. This decline in dApp activity on Ethereum raises questions about the network’s ability to maintain its dominance in the rapidly evolving decentralized finance (DeFi) space.
Ether’s quarterly futures market also presents some unease among professional traders. Typically, futures contracts trade at a premium compared to spot markets to account for delayed settlement. However, Laevitas data shows that the current premium for Ether three-month futures is below the neutral threshold, suggesting a decreased appetite for leveraged bullish positions on ETH. This cautious sentiment among professional traders raises concerns about the short-term price performance of Ether.
Furthermore, a survey conducted by CryptoVantage revealed that 46% of 1,000 North American cryptocurrency investors named Ether as the top contender to surpass Bitcoin. While this may seem like a positive indicator, it is important to note that the survey did not consider the likelihood of any coin eventually surpassing Bitcoin. Therefore, the respondents’ views may not necessarily reflect the strong odds of this outcome.
Considering Market Dynamics
Fidelity Digital Assets’ analysis provides valid reasons for their bullish stance on Ether’s price performance in the next 12 months. However, it is crucial to consider the challenges and concerns mentioned to gain a comprehensive understanding of the market dynamics surrounding Ether.
Persistently high gas fees on the Ethereum network and the lack of interest from leverage buyers indicate a risk of the Ether price breaking below the channel support in the shorter term. The impact of these challenges should not be overlooked, as they may overshadow some of the positive developments highlighted by Fidelity.
When evaluating investments and market projections, it is essential to carefully assess the available data, consider potential risks and challenges, and regularly monitor market dynamics. This approach allows for a more informed decision-making process and helps mitigate the potential impact of unexpected fluctuations in the market.