Cryptocurrency News – Fidelity Digital Assets’ “2023 Q2 Signal Report,” published on July 18, offers a bullish forecast for Ethereum’s performance next year and beyond. Despite a 62% increase in Ether's value since the beginning of the year, Fidelity maintains a cautious stance on the sustainability of the uptrend in the short term.
Fidelity focuses on various indicators of Ethereum's health in its assessments. These include Ethereum’s higher burn rate compared to cryptocurrency minting, so-called “new address momentum” (indicating new user engagement), and an increase in the number of network validators. The report suggests that since the “Merger” in September 2022, net issuance has resulted in a net supply reduction of over 700,000 Ether. This, combined with Glassnode data showing a surge in Ethereum transactions for the first time, underscores solid network adoption.
Additionally, the number of active Ethereum validators increased by 15% in the second quarter, which is an important factor indicating network security and decentralization.
Expectation around EIP-1153
Fidelity is also aware of the growing momentum surrounding Ethereum Improvement Proposal (EIP) 1153. This protocol update is set to improve smart contract efficiency, reduce costs, and strengthen the design of the Ethereum Virtual Machine. This is a particularly significant change for decentralized exchanges (DEXs), which have seen Ethereum's dominance drop from 60% to 46% in the last six months.
Further supporting Ethereum's potential is the upcoming upgrade to Uniswap, a leading DEX. The soon-to-be-released Uniswap v4 will offer programmable buttons, native ETH support, and unlimited type pools using a singular contract that processes internal transactions before settling final balances.
Challenges and opportunities of the Ethereum network
There are some challenges facing the Ethereum network, but there are also many opportunities. Despite the positive developments, high gas fees caused a decline in the total locked value of Ethereum, reaching the lowest level since April 2020, i.e. 13.55 million ETH. Moreover, DappRadar's unique 30-day active wallet data also shows reduced activity on decentralized applications.
However, Ethereum still maintains its position as a strong competitor in the crypto market. According to a survey by CryptoVantage, 47% of 1,000 North American cryptocurrency investors think Ethereum is the biggest competitor, surpassing Bitcoin. This is an optimistic outlook, but it does not mean that respondents in the survey think Ethereum will definitely surpass Bitcoin.
Fidelity's report summarizes that Ethereum offers strong reasons for optimism regarding its 12-month performance. However, the ongoing issue of high gas fees indicates that the Ethereum price could potentially be under downward pressure.