Fidelity Digital Assets recently released its “Q2 2023 Signals Report” on July 18, expressing a positive outlook for Ether (ETH) in both the short and long term.
While the investment firm is optimistic about Ether’s performance in the coming months, it doesn’t necessarily believe that the current bullish trend will be sustained.
To assess the accuracy of Fidelity’s analysis, let’s compare it against network and market data.
Fidelity’s bullish outlook for Ether is supported by several factors.
First, the report highlights the network’s higher burn rate compared to coin issuance, which has resulted in a net supply decrease of over 700,000 Ether since the Merge in September 2022.
Additionally, the report points to an increasing number of Ethereum addresses transacting for the first time, indicating healthy network adoption.
Furthermore, the report mentions a 15% rise in the number of active Ethereum validators during the second quarter, indicating increased participation in securing the network.
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The anticipated upgrade of the leading decentralized exchange (DEX), Uniswap, is another potential bullish factor for the Ethereum network.
Uniswap v4 is expected to introduce features such as programmable buttons, native ETH support, and a singleton contract, which could improve the efficiency and cost-effectiveness of smart contracts.
If the upgrade includes the implementation of EIP-1153, it could help Ethereum regain market share lost due to high gas fees. Presently, Ethereum’s total value locked has decreased to its lowest level since April 2020.
The upgrade could also boost decentralized application activity, which has declined recently, as indicated by decreased usage of platforms like Uniswap, 1inch Network, MetaMask Swap, and OpenSea.
Despite these positive indicators, derivatives metrics have remained flat, signaling caution among professional traders.
Ether quarterly futures currently trade at a premium of 4% compared to spot markets, below the neutral threshold. This suggests reduced enthusiasm for leveraged bullish positions on ETH.
Additionally, investor sentiment may have become overly optimistic due to Ether’s 59% gains year-to-date.
A survey of North American cryptocurrency investors revealed that 46% named Ether as the top contender to surpass Bitcoin.
However, it’s important to note that the survey did not inquire about the likelihood of any coin eventually flipping Bitcoin.
While Fidelity’s analysis provides valid reasons for its bullish stance on Ether’s performance over the next 12 months, it acknowledges the challenges posed by high gas fees and reduced interest from leverage buyers in the short term.
These factors increase the chances of Ether’s price breaking below the current bullish channel support.
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