Fidelity Report 47% of Investors Expect Ethereum to Surpass Bitcoin

Fidelity report 47% of investors believe Ethereum will surpass Bitcoin.

Author: MARCEL PECHMAN, COINTELEGRAPH; Translation: Song Xue, LianGuai

Fidelity Digital Assets released the “2023 Q2 Signal Report” on July 18, claiming that the future 12-month and long-term prospects for Ethereum are positive. Ethereum has risen 62% so far this year. Although this investment company is optimistic about Ethereum in the short term, it does not mean that it believes the bullish trend lasting for a month will continue.

While institutional investors like Fidelity Digital Assets may have a positive outlook on the price of ETH, let’s compare their analysis with network and market data to see if they are correct.

Ethereum/USD 1-day price index. Source: TradingView

In addition to technical indicators, Fidelity’s reasons for being bullish on Ethereum’s prospects include a higher burn rate of tokens relative to the issuance, “new address momentum,” and an increase in the number of network validators.

Fidelity “2023 Q2 Signal Report,” July 18. Source: Fidelity Digital Assets

According to Fidelity’s report, the net issuance since the merger in September 2022 has led to a decrease of over 700,000 in Ethereum’s net supply. In addition, analysts claim that Glassnode data shows a continuous increase in the number of Ethereum addresses with first-time transactions, which proves that the network is being actively used.

The report also points out that the number of active Ethereum validators increased by 15% in the second quarter.

The expectation surrounding EIP-1153 has also injected momentum into the Ethereum network, as the “transient storage opcode” improves smart contract efficiency, reduces costs, and expands Ethereum’s virtual machine design. This change is particularly meaningful for decentralized exchanges (DEXs). According to DefiLlama data, Ethereum’s dominance has decreased from 60% six months ago to 46%.

The Dencun upgrade is expected to reduce transaction costs.

Another potential bullish factor for the Ethereum network is the anticipated upgrade of the leading DEX Uniswap. According to a demonstration at an Ethereum community meeting on July 17, the upcoming Uniswap v4 will allow users to build pools of unlimited types using programmable buttons (hooks), native ETH support, and singleton contracts that execute internal transactions before settling final balances.

This announcement increases the likelihood that EIP-1153 will be included in the next “Dencun” upgrade, which has caught the attention of Scott Lewis, co-founder of Slingshot and DeFi Pulse.

If approved, this will be crucial for regaining market share lost by the Ethereum network due to high gas fees, as the 7-day average transaction cost has exceeded $4 since February. Therefore, according to DefiLlama data, the total locked value of Ethereum has dropped to its lowest level since April 2020, at 13.55 million ETH.

In addition, decentralized application (DApp) activities have decreased. According to the 30-day data from DappRadar’s unique active wallets, Uniswap decreased by 28%, 1inch Network decreased by 14%, MetaMask Swap decreased by 8%, and OpenSea decreased by 5%. In contrast, during the same period, the number of users on BNB Smart Chain’s PancakeSwap increased by 10%, and the number of users on Polygon’s Uniswap increased by 8%.

Derivatives indicators remain stable

Ethereum quarterly futures have been releasing signals of concern from professional traders. Compared to the spot market, the trading prices of these fixed-month contracts usually have a premium of 5% to 10% to compensate for delayed settlements (known as futures premiums).

Ethereum 3-month futures premium. Source: Laevitas

Data from Laevitas shows that the current premium for Ethereum’s three-month futures is 4%, which is below the neutral threshold and lower than the 5.5% level on July 14th. This indicator clearly indicates that traders are less inclined to use leverage to take bullish positions on ETH.

What is more concerning is that Ethereum’s year-to-date increase of 59% may have made investors overly optimistic. A recent survey conducted by CryptoVantage on 1,000 North Americans who have invested in cryptocurrencies in the past 5 years found that 46% of them believe Ethereum is the best competitor to surpass Bitcoin.

Tokens most likely to surpass Bitcoin. Source: 2023 CryptoVantage Survey

This is a somewhat surprising viewpoint, but it may be misleading as the survey did not ask whether any token will eventually surpass Bitcoin, so respondents may not hold great hopes for this result.

Fidelity’s analysis provides reasonable reasons for the company’s optimistic view on Ethereum’s 12-month price performance. However, in the short term, frequent high gas fees and a lack of interest from leveraged buyers indicate an increased possibility of Ethereum’s price breaking below the channel support level.