Fidelity Digital Assets published its Q2 2023 Signal Report on July 18, which claims that the outlook for Ethereum (ETH) is positive for the next 12 months and long term. Ether prices have risen 62% so far this year, but while investment firms may be “short-term” bullish on Ether, that doesn’t mean they believe the month-long bullish channel will continue.

While institutional investors like Fidelity Digital Assets may have a bullish long-term vision for ETH price, let’s compare their analysis with network and market data to see if they are making money.

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

Technical indicators aside, the rationale behind Fidelity investing Report The bullish outlook for ether is a higher burn rate for the network relative to token issuance, “new address momentum,” and growth in the number of validators on the network.

Fidelity, “Second Quarter 2023 Signaling Report,” July 18.Source: Fidelity Digital Assets

According to the Fidelity report, the net issuance since the merger in September 2022 resulted in a reduction in the net supply of Ether of more than 700,000. Additionally, analysts claim that the growing number of Ethereum addresses for the first time on Glassnode transactions is evidence of healthy adoption of the network.

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

The anticipation surrounding EIP-1153 has also created momentum for the ethereum network, as “transient storage opcodes” improve smart contract efficiency, reduce costs, and amplify ethereum virtual machine (EVM) designs. The change is especially meaningful for decentralized exchanges (DEXs), whose dominance of the ethereum network has dropped to 46 percent from 60 percent six months ago, according to DefiLlama.

Registration upgrade is expected to reduce transaction costs

Another potentially bullish factor for the Ethereum network is the expected upgrade of leading DEX Uniswap. According to a demo on Ethereum CC on July 17, the upcoming Uniswap V4 will allow users to build unlimited types of swaps using programmable buttons (hooks), native ETH support, and singleton contracts that execute internal transactions before settling final balances. pool.

The announcement raised the possibility that EIP-1153 will be included in the next “Dencun” upgrade, which caught the attention of Slingshot and DefiPulse co-founder Scott Lewis:

If approved, the implementation will be crucial for the ethereum network to make up for lost market share due to high gas fees, as the seven-day average price has exceeded $4 since February. As a result, Ethereum’s total value locked (TVL) has dropped to its lowest level since April 2020 at 13.55 million ETH, according to DefiLlama.

Additionally, DappRadar’s unique 30-day data on active wallets shows that decentralized application (Dapp) activity has decreased: Uniswap -28%, 1inch Network -14%, MetaMask Swap -8%, and OpenSea -5%. In comparison, BNB Chain’s PacakeSwap users grew by 10% and Polygon’s Uniswap users increased by 8% during the same period.

Derivatives indicators remain flat

Ether quarterly futures have been sending jittery signals among professional traders. These fixed-month contracts typically trade at a premium of 5% to 10% compared to the spot market to compensate for delayed settlement (a condition known as contango).

Ethereum 3-month futures contango. Source: laevitas.ch

The three-month ether futures contango is currently at 4%, below the neutral threshold and below the 5.5% level on July 14, according to Laevitas. This indicator clearly shows that traders are less willing to use leverage for bullish ETH positions.

More worryingly, ethereum’s 59% year-to-date rally may have led investors to become too optimistic. A recent CryptoVantage survey of 1,000 North Americans who have invested in cryptocurrencies over the past 5 years found that 46% believe ethereum is the top contender to overtake bitcoin.

Related: Bitcoin Rally Will Lead to “Speculative Peak” in 2024, Mark Yusko Predicts

The coin most likely to outperform Bitcoin.Source: CryptoVantage Survey 2023

This is a somewhat startling point, but it can be misleading as the survey didn’t ask whether other coins would eventually flip Bitcoin, so respondents weren’t necessarily very hopeful about this outcome.

Fidelity’s analysis gives reasonable reasons why they are bullish on ETH’s 12-month price performance, but in the short term, recurring high oil prices and lack of interest from leveraged buyers point to an increased likelihood of ETH price breaking below channel support .