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Ethereum (ETH) Outlook: Will Network Upgrades Be Enough to Boost the Price?

2 mins
Updated by Kyle Baird
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In Brief

  • Ethereum's Zhejiang testnet and Shanghai upgrade announcements have triggered intense price action.
  • Social sentiment points towards a potential flat February price performance.
  • There's a shortage of new demand to help drive ETH prices as investors turn to alternative proof-of-stake protocols. 
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Ethereum has delivered an impressive 43% performance year-to-date. But there have been mixed signals surrounding the pioneer smart contract network recently. 

Ethereum became deflationary following the completion of The Merge and the implementation of the Ethereum Improvement Proposal 1559. This EIP enabled a mechanism for gas fees on the network to be burned and caused the ETH supply to become deflationary in December 2022. However, the ETH price is essentially at the same level as when The Merge occurred.

A look at some on-chain data can help us see how Ethereum whales are positioning for the coming weeks. 

Ethereum Price Flat After Announcement of Network Upgrade 

Ethereum (ETH) is currently up by 36% since the start of 2023. But other rival layer-1 altcoins like Cardano (ADA), Polygon (MATIC), and Solana (SOL) have all outperformed it, with 57%, 62% and 132% YTD growths, respectively.

Ethereum Price and Whale Transaction Charts February 2023 | Source: Santiment
Ethereum Price and Whale Transaction Charts February 2023 | Source: Santiment

Following the Jan. 31 announcement of the Zhejiang testnet, which would allow testing of staking withdrawal functionality, ETH remained flat around the $1,600 mark. In the same period, whale interest also waned.

On-chain data from Santiment shows that large transactions between $100,000 and $1 million have persistently dropped since the middle of January.

Ethereum Network Activity Falters, but Support Levels Hold

As we enter February, the Ethereum network activity has declined. From a YTD high of 1.18 million, 24-hour transactions volume on Ethereum dropped considerably below 800,000 in February, as Santiment data revealed. 

Ethereum Transaction Count February 2023 | Source: Santiment
Ethereum Transaction Count February 2023 | Source: Santiment

However, despite the persistent decline in transaction count, Ethereum has successfully held its $1,400 support.

Ethereum IOMAP analysis
Ethereum IOMAP analysis. February 2023. Source: IntoTheBlock

In/Out of the Money (IOMAP) data from IntoTheBlock shows that ETH is likelier to crack the $1,700 resistance than to lose its $1,400 support. 

IntoTheBlock estimates IOMAP data by comparing purchase prices of ETH held in wallets to the current prices.

Going by the current IOMAP analysis, ETH has stayed above $1,400 despite increasing whale-sell pressure because fewer holders are likely to break even at the resistance level. Many network participants who are ‘in the money’ are currently absorbing the selling pressure. 

Futures Markets Positions Betting on a Dip

Futures markets are where traders bet on the future performance of an underlying asset. ETH futures market trends and prices are prime indicators when assessing the probability of a rally.

Currently, long/short positions are showing caution signals as more investors are betting on an ETH price drop in the coming weeks. 

ETH Long vs Short Ratio February 2023. Source: Coinglass

Since reaching a 2023 peak of 1.13, the ETH long/short ratio has dropped below 0.96 on Feb. 5. 

Coinglass computes the long/short ratio by comparing the volume of long vs short positions held by ETH derivative traders in the futures markets. The falling long/short ratio shows investors predict an impending price decline.

Ethereum perception
Ethereum Weighted Sentiment February 2023. Source: Santiment

Notably, Santiment’s Weighted sentiment data shows that social perception surrounding Ethereum is largely negative. 

But all that could quickly change if the Zhejiang testnet withdrawals are successful without major technical concerns. The Zhejiang testnet is set to roll out on Feb. 7 ahead of the Shanghai upgrade later in March.

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Ibrahim Ajibade
Ibrahim Ajibade Ademolawa is an experienced On-chain research analyst who began his career in Commercial Banking. He has worked with several Web3 startups and financial institutions —analyzing technical concepts and spectacular events that link the DeFi and TradFi worlds. He holds a Bachelors’ Degree in Economics and is currently pursuing an MSc. in Blockchain & Distributed Ledger Technologies.