47% of investors believe Ethereum will surpass Bitcoin, according to a crypto survey.

47% of investors believe Ethereum will surpass Bitcoin, according to a crypto survey.

The Bullish Outlook for Ether: Insights from Fidelity Digital Assets

Fidelity Digital Assets, a leading institutional investor, released its ‘Q2 2023 Signals Report’ on July 18, which stated that the outlook for Ether (ETH) in the next 12 months and the long term is positive. While the investment firm is short-term bullish on Ether, they do not believe that the month-long bullish channel will be sustained. In order to assess the accuracy of Fidelity’s analysis, let’s delve into the network and market data and compare it with their claims.

Network Growth and Adoption

One of the key reasons behind Fidelity’s bullish outlook for Ether is the network’s higher burn rate compared to coin issuance. The report highlights a net supply decrease of over 700,000 Ether since The Merge in September 2022. This reduction in supply contributes to the overall scarcity of Ether, which can potentially drive its value higher.

Additionally, Fidelity points out the increasing number of Ethereum addresses that have transacted for the first time, indicating healthy network adoption. Glassnode’s data supports this claim, showing a growth in Ethereum addresses engaged in transactions. This trend signifies a growing interest in the Ethereum network and its potential for widespread use.

Moreover, Fidelity’s report reveals a 15% increase in the number of active Ethereum validators in the second quarter. Validators play a crucial role in securing and validating transactions on the Ethereum network. The rise in the number of validators indicates growing confidence in the network’s stability and security.

The Impact of EIP-1153 on Ethereum Network Efficiency

The anticipation surrounding the Ethereum Improvement Proposal (EIP)-1153 is another factor contributing to the positive outlook for the Ethereum network. This proposal introduces a “transient storage opcode” that enhances the efficiency of smart contracts, reduces costs, and improves the design of the Ethereum Virtual Machine (EVM). This change is particularly significant for decentralized exchanges (DEX) as it can enhance their performance.

According to DefiLlama data, the dominance of the Ethereum network in the DEX space has declined from 60% to 46% in the past six months. However, the implementation of EIP-1153 could potentially reverse this trend by improving the efficiency of Ethereum-based DEX platforms. The reduction in gas fees and improved transaction speeds could attract more users and increase the network’s market share.

The Potential of the Dencun Upgrade

Another bullish factor for the Ethereum network is the upcoming upgrade on the leading decentralized exchange, Uniswap. The upcoming Uniswap V4 is expected to introduce features such as programmable buttons (hooks), native ETH support, and a singleton contract for internal transactions. This upgrade aligns with the anticipated inclusion of EIP-1153 in the “Dencun” upgrade.

If approved, this implementation could play a vital role in reducing transaction costs on the Ethereum network. The high gas fees, which have remained above $4 since February, have impacted Ethereum’s total value locked (TVL) negatively. Additionally, decentralized application (Dapp) activity has seen a decline, as indicated by the decrease in unique active wallets on platforms like Uniswap, 1inch Network, MetaMask Swap, and OpenSea.

Derivatives Metrics and Investor Sentiment

While Fidelity Digital Assets presents a bullish outlook for Ether, derivatives metrics and investor sentiment tell a slightly different story. The Ether quarterly futures premium, which typically trades at a premium compared to spot markets, currently stands at 4%, indicating a lower inclination among professional traders to use leverage for bullish ETH positions.

Furthermore, the recent CryptoVantage survey revealed that 46% of North-American investors who have invested in cryptocurrencies over the past five years believe that Ether has the best chance of surpassing Bitcoin. While this is an interesting perspective, it should be noted that the survey did not ask whether respondents believed another coin would eventually flip Bitcoin, so the odds of this outcome are not necessarily high.

Conclusion

Fidelity Digital Assets’ analysis provides valid reasons for their bullish outlook on Ether’s performance over the next 12 months. The network’s growth, increased adoption, and anticipated upgrades offer promising prospects for the Ethereum ecosystem. However, it is important to consider the challenges posed by high gas fees and the cautious sentiment among professional traders.

As the blockchain industry continues to evolve, it is crucial to analyze market and network data alongside expert opinions to make informed decisions. The blockchain industry is a dynamic space, and its future will be shaped by the interplay of various factors, including technological advancements, market trends, and investor sentiment.