In the first months of 2023, the cryptocurrency market appeared to have changed significantly from the challenges it had to face over the previous year. Although digital assets have a relatively short history compared to other holdings, they have gained quite a reputation for volatility, with several events making trading in digital assets, not for the faint of heart. In fact, there’s a famous saying that you should invest only as much as you feel comfortable losing. Yet, while several events throughout crypto’s history have left their mark on digital assets, many agree that few years have been as challenging for the market as 2022.
Ethereum plummeted to very low levels, yet it has climbed back again, reaching the $1,800 mark. However, it fell down slightly since then, to around $1,700, in the aftermath of massive whale transactions. Other events, such as the collapse of the crypto-friendly Silvergate bank, have also been detrimental to the rise of the values. Nonetheless, investors maintain their belief that things will start looking up sooner rather than later and that the price will shortly return to values similar to those of 2020 and 2021.
Here are the trends set to shape the cryptocurrency environment in 2023.
Cryptocurrency has never had a reputation as an environmentally-friendly asset. Quite the opposite, it is well-recognized as a holding with a rather large carbon footprint. This is due to the fact that quite a significant amount of energy is used to generate new coins. Mining has been cited as a legitimate environmental concern, with CO2 levels approaching the country-level emissions of Greece, Spain, The Netherlands and Austria. This is particularly worrying in the context of the climate crisis and has led many to ask for solutions to the problem.
While using green energy, such as solar or wind power, as well as upgrading older machines and exchanging them for newer, more efficient models, the threat of greenwashing still looms above the industry. This practice occurs when a company spends more time marketing itself as green and environmentally conscious instead of taking practical steps towards helping the environment and promoting ethical processes.
This issue has led to the creation of a carbon tracker that’s fully Ethereum-based. This tool keeps track of the carbon credit lifecycle, including the issuing and retiring of carbon credits. Tokenizing and tracking the credits has become an increasingly lucrative field within infrastructure growth. It is also a very good way of employing the blockchain in a practically useful and highly beneficial way.
The blockchain is an incredibly large decentralized network, meaning that everyone has access to the same amount of data within its borders. However, that also comes with some drawbacks, among them the fact that scaling can be pretty difficult to achieve. There are two main types, on- and off-chain scaling. The former requires changes to the fundamental Ethereum protocol. The most common method at the moment is sharding, a process which refers to the horizontal splitting of data. The purpose of this task is to reduce congestion within the network and boost transaction speed via the creation of new chains.
In the case of off-chain scaling, things are a little more complicated. Here, solutions are separated into two further categories: layer two and the creation of new chains. The former includes optimistic and zero-knowledge rollups and state channels, while the latter consists of validiums, side and plasma chains. In the case of layer two, the aim is to increase the number of transactions per second and to improve the overall user experience. Since it builds on top of Ethereum, there are also no concerns regarding decentralization or security infringements.
The creation of new chains includes fraud proofs to arbitrate disputes. They allow the processing of as many as ten thousand transactions per second and the possibility for multiple chains to run simultaneously.
Since its emergence on the market, the Ethereum blockchain has hosted several upgrades which served to improve its efficiency and make it a better, safer place for investors. This has created a reputation for the blockchain as being at the forefront of technological developments within the cryptocurrency environment. The introduction of the Shanghai upgrade, set to be released shortly, is expected to create the perfect conditions for a bullish rally.
DeFi protocols have recently become more appealing to investors. The recent spike in activity in this area indicates that a surge can be expected to intervene in the upcoming weeks. Those who haven’t yet designed their trading strategies in a way that can work adequately with this market shift still have time to rethink their plans and find new ways to ensure their ventures are successful.
In just one week, between the 13th and the 20th of March, the Ethereum supply rose by roughly 270,000 ETH. While that may not seem like all that much given the overall scope of blockchain transactions, you might change your opinion upon learning that this number represents 0.22% of the entire Ethereum supply currently in circulation. To put a fiat money price on it, that is the rough equivalent of $200 million.
The volume increase for tokens situated in smart contracts reduces the number of units apt for exchange-based trading. As a result, the lowered sell pressure and scarcity could potentially propel Ethereum straight into its next bull run. If the current trends in DeFi activity remain consistent and NVT ratio levels remain low, you can expect an upside soon enough.
The bottom line
Many investors are optimistic that the Ethereum price will breach the $2,000 margin this year. Indeed, the values will likely face minimal resistance on the ascending path, provided there are no further negative developments for the overall market. If you’re looking for a way to boost your transactions, keep an eye out for the Shanghai upgrade, scheduled to be released on April 12th. Many investors predict that around 16 million staked Ether will be sold immediately, while others place their faith in the triggering of a price rally. Only time will tell who’s right.