Bearish sentiments surrounding Ethereum (ETH) have gained traction lately, making it quite easy for observers to draw negative conclusions about its performance in the crypto sphereSince the market hit rock-bottom in early 2023, ETH's performance has notably lagged behind that of Solana (SOL), falling short by a staggering 6.8 timesFurthermore, in the last two years, it has plunged by 47% in comparison to Bitcoin (BTC). With such sobering statistics at hand, many enthusiasts are left questioning whether it's time to anticipate a rebound for Ethereum.

The reasons behind Ethereum’s dismal performance are a topic of heated discussion, but several major factors stand outFirstly, Bitcoin's reputation as "digital gold" embodies a narrative that resonates simply and clearly with both new retail investors and institutional playersOn the other hand, Ethereum's storyline is muddled and less readily palatable

The common analogy of Ethereum as "digital oil" fails to capture the magnetic essence that draws investors and traders, making it relatively less appealing.

Additionally, we observe that Solana has begun to surpass Ethereum in several key metrics, including active users, transaction volume, and media attentionThis shift is succinctly encapsulated in the notion that Bitcoin remains a safer bet for general crypto adoption, while Solana presents a riskier, more speculative option for those interested in smart contractsAs a consequence, Ethereum finds itself sandwiched between these two competing narratives, causing pressure and pushing its market position to the edges.

The modular approach Ethereum adopts, along with Layer 2 solutions, invites further complexities into the user experience while fracturing liquidityInvestors betting on this modularized model often struggle with diversified purchases across Ethereum's various test tokens and Layer 2 alternatives

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In stark contrast, those betting on Solana only need to invest in the SOL token, thus simplifying their involvement.

Initially, I was convinced that Ethereum (ETH) would outperform Bitcoin (BTC) thanks to the high yields from its airdrop mining rewardsIn hindsight, with rewards being generated from re-staking protocols, my actual performance on ETH significantly surpassed what the spot price suggested.

However, the anticipation of future gains has not sparked enough fear of missing out (FOMO) on ETH, likely due to the burden of overexposure some investors have experienced during this bear marketMany had grown confident that ETH would not fail, making large purchases that now weigh heavily on their portfolios.

Conversely, far fewer investors hold SOL, and it's noteworthy that many crypto native users have drifted from ETH to SOL as the latter gained tractionWithout substantial retail inflows, ETH's price stagnated while its market activity dwindled.

Moreover, Ethereum’s revenue and burn rate have experienced a downturn following the EIP-4884 Proto-danksharding upgrade, where Layer 2 transactions decreased fees and, in turn, diminished the rate at which ETH is destroyed

Although inflation rates remain below 1%, this development serves as a setback for investors who viewed ETH as “ultrasound money,” a dependable store of long-term value.

Currently, discussions around “ultrasound money” are sparse on platforms like X (formerly called Twitter). Despite the slew of bearish opinions circulating on X, Ethereum still maintains a moderately bullish market sentiment, albeit less pronounced than that surrounding BTC.

Turning to a discussion of bullish narratives regarding Ethereum (ETH), there are numerous reasons to remain optimisticI reached out to my followers on X to solicit their perspectives.

For those interested, I’ve compiled a list of the top ten most compelling bullish arguments with the assistance of Kaito AI:

• If gas fees hold steady around 20 gwei, Ethereum asserts itself as an attractive and efficient network, demonstrating both deflationary aspects and scalability.
• Since March, ETH gas fees have dipped below 20, catering to average users who can now stake ETH independently from home, enhancing decentralization.
• A robust developer community propels continuous innovation and fortifies the network’s resilience.
• Ethereum remains the leading smart contract platform, boasting reliability and decentralization devoid of substantial competitors.
• Current development projects, including second-layer solutions and interoperability enhancements, bolster optimism while striving to mitigate fragmentation and improve network efficiency.
• Increased regulatory transparency, particularly from the US and EU, is fostering confidence among institutional players like BlackRock who are looking to adopt Ethereum.
• Improved staking options allow ETH holders to contribute to network security without extensive technical know-how or resources.
• Major firms like Coinbase and BlackRock are paving the way for the tokenization of real-world assets (RWAs) on Ethereum.
• The expanding DeFi capabilities and potential dominance of stablecoins associated with Ethereum present immense growth opportunities.
• The collective enthusiasm and pride among Ethereum holders and users add to a positive overall outlook, driving market interest.

I also invited several notable figures from the Ethereum world on X to weigh in on their bullish views for ETH, including Camila Russo, founder of The Defiant, and Christine Kim, a researcher at Galaxy.

According to Camila, Ethereum's advantages stem from various strengths:

• Its mature DeFi ecosystem encompasses the wealth of liquidity and decentralized applications (dApps), making it the frontrunner in drug-locking and transaction volume, thus attracting more users and promoting ETH activities, which subsequently raise fees and destroy more ETH.
• Ethereum’s decentralization and security inspire confidence in institutional giants – with BlackRock and PayPal utilizing the platform for tokenization and blockchain settlements.
• The increasing significance of the ETH ETF allows institutions to invest in one of the few cryptocurrencies with regulatory approval, giving ETH price support over the long term.

Christine Kim, on the other hand, highlighted the substantial network effect of Ethereum.

She pointed out that Ethereum was the first general-purpose blockchain and still enjoys the most attention from developers, contributing significantly to its value proposition.

It's no wonder that I prefer to store my long-term assets within Ethereum

Unlike Solana, which has faced downtime, Ethereum has demonstrated reliability over the years.

I am also excited about Ethereum’s viability as the chain for tokenizing RWAsNotably, 52% of all stablecoins and 73% of US Treasury bonds are tokenized on Ethereum.

When it comes to meme coins, Solana might appeal more to an adventurous spirit, but for the serious matter of tokenizing RWAs worth billions, Ethereum remains the most secure choice.

Next, let’s grapple with the considerable subject of Layer 2 solutions.

While Solana operates as a smooth monolithic chain with quick transactions and low costs, it is not without its limitations.

In contrast, the modular scaling offered by Layer 2s stands out as a long-term solution that enhances scalability through tailored L2 solutions for specific use cases.

Layer 2s afford increased flexibility, simplicity, and opportunities for cultural sovereignty

Cygaar eloquently illustrates this in a recent post:

The current issue of fragmented liquidity, predominantly due to bridging dependencies, is hoped to be temporaryFor instance, Catalyst AMM enables atomic swaps across chains, eliminating the need to rely on bridged assetsWith this approach, liquidity remains fractured, yet end-users enjoy optimal pricing, courtesy of multiple chains contributing to itMore solutions like Catalyst are in development.

There are also significant ongoing initiatives advanced by Layer 2 networks themselves.

For example, Optimism is fully integrating the ERC-7683 standard for application-layer interoperability across various Ethereum Layer 2s, allowing them to function seamlessly as a unified ecosystem.

Similarly, Polygon is developing an AggLayer that facilitates one-click cross-chain transactions, aiming to recreate online experiences in a single protocol network.

Moreover, several new solutions, such as Caldera's Metalayer, Avail Nexus, and Hyperlane, are in the pipeline.

While multiple aggregation mechanisms present challenges, future improvements in liquidity and the user experience should gradually alleviate these concerns.

I believe people are underestimating the speed at which these changes will materialize

I encourage you to keep an eye out for Andy's updates on X regarding modular scaling.

In the meantime, you can explore this article by Blocmates to learn more about the various products addressing current issues in the ecosystem.

Indeed, even Vitalik has suggested that people will be surprised at how swiftly the "cross-L2 interoperability problems" will be addressed.

If you're in need of more bullish insights, check out Emmanuel's post belowHe remains optimistic due to Ethereum's strong community engagement, sustained innovation, and its long-term adaptability.

Should the Layer 2 fragmentation issues resolve and RWA tokenization continue its upward trajectory on Ethereum, I’d maintain a very optimistic outlook, albeit considering these factors are fundamentally long-term.

In the short term, however, there’s a catalyst that has garnered scant discussion: the impending Pectra upgrade.

So, what exactly is the Pectra upgrade?

The Pectra upgrade is poised to be Ethereum's next significant milestone, expected to launch in the first quarter of 2025. It integrates updates from both the Brag (execution layer) and Electra (consensus layer).

For details regarding timelines and specific EIPs, you can visit Ethroadmap.com.

While Ethereum's major upgrades have often attracted high levels of enthusiasm, the Pectra upgrade seems to have flown under the radar.

And I can understand why

Ethereum has undergone significant transformations recently—transitioning from Proof of Work (PoW) to Proof of Stake (PoS), instigating ETH burning, and implementing EIP-4884 among othersNonetheless, Pectra introduces some fascinating upgrades.

1. Account Abstraction: Improving User Experience

Among the most critical changes with Pectra pertains to how it can handle accounts.

The current management of wallets necessitates a plethora of cumbersome steps, from signing transactions to mastering gas fees across various networksThanks to account abstraction, Pectra streamlines this entire process.

EIP-3074 and EIP-7702 are two proposed improvementsEIP-3074 allows traditional wallets (Externally Owned Accounts or EOAs) to engage with smart contracts, such as enabling batch transactions and sponsoring transactions.

EIP-7702 takes this a step further by allowing EOAs to temporarily act as smart contract wallets during a transaction

This temporary utility means your EOA wallet only behaves like a smart contract wallet for the transaction duration.

In practical terms, this equates to: approved USDC and a simultaneous swap for UNI in a single transaction.

Decentralized applications (dApps) can provide gas fees for users (increasing adoption ease) and approve dApps to work with specific wallets and set limits on spending.

Note: EIP-3074 seems to have been prioritized by Vitalik over EIP-7702, which has compatibility with future account abstraction implementations.

This intriguing notion of an “EOA temporarily becoming smart contracts” is appealing, especially given the current incompatibility many dApps have with smart account wallets.

It will be exciting to observe how account abstraction attains greater recognition post-upgrade.

1. Staking Improvements

The Pectra upgrade will also bring significant enhancements for running validators.

EIP-7251 will increase the maximum deposit amount for validators from 32 ETH to 2048 ETH

This enhancement enables larger stake providers to pool their staking, resulting in reduced validator numbers and alleviating network strain.

Additionally, smaller stakers will benefit from more flexible staking options, with the ability to stake as little as 40 ETH or compound rewardsThe wait time for ETH staking will decrease from hours to mere minutes.

One major development I am particularly excited about relates to MEV mitigation, although it appears to fall outside the scope of Pectra upgrade.

1. Scalability Improvements

Pectra also introduces Peer Data Availability Sampling (PeerDAS) via EIP-7594.

Similar to the Proto-Danksharding improvements from previous Dencun upgrades, PeerDAS will render transactions on Layer 2 less expensiveHowever, I couldn’t uncover specific figures on how much cheaper it could be (I suspect PeerDAS will be particularly useful during high demand periods). 0xBreadguy noted that Pectra might amplify blob capacity by 2 to 3 times.

Moreover, several technical enhancements are included, such as BLS12-381 to condense BLS signatures (reducing gas costs) and EIP-2935 to validate transactions without requiring access to all blockchain history records.

These EIPs, alongside the anticipated implementation of Verkle Trees Transition (EIP-6800) that will succeed the existing Merkle tree structure, will bolster security for light clients and ease node participation in the network, ultimately enhancing decentralization.

A significant change is that the EVM will accommodate 11 EIP modifications, resulting in a smoother process for writing and deploying smart contracts, thereby reducing costs and improving efficiency

Put plainly, developing on Ethereum is becoming more straightforward.

For a simplified explanation of the effects of the technical upgrades, check out this post by an Ethereum intern.

I’m thrilled with the introduction of Single Slot Finality (SSF) via the Pectra upgrade, although it’s yet to be included in the upcoming Osaka upgrade.

Vitalik discussed in December 2023 that SSF represents the easiest method to rectify deficiencies in Ethereum's PoS design.

Currently, achieving consensus on blocks using Proof of Stake requires approximately 15 minutes to secure finality, meaning blocks cannot be altered or deleted without substantial economic costsSSF aspires to diminish this timeframe to a mere one slot, roughly 12 seconds, ensuring that blocks attain finality nearly instantaneously after their creation.

This enhancement equates to faster, more secure bridges as well as quicker centralized exchange deposits—though it’s disappointing that this hasn’t materialized yet

The decision to omit it from the upgrade appears cynical, signaling that Ethereum developers are still not prioritizing Layer 1 expansionMy optimism would increase significantly should clearer indications arise that the core ETH community is focusing on Layer 1 expansion; as it stands, this doesn’t appear to be an area of priority.

Regardless, Pectra is a technical upgrade, and I posit that its significance is underrated by the market.

Now, let’s pivot to a conversation regarding ETH pricing.

VanEck forecasts ETH to reach a fundamental price of $118,000 by 2030.

To be honest, $118,000 sounds rather pessimistic; I hope it trades higher five years from nowHowever, consider this: VanEck's prediction for Solana’s 2030 price target is merely $335.

Thus, based on their projections, ETH demonstrates a potential return of 4.4 times, while SOL showcases only 2.2 times potential returns

It's important to note that both projections were shared more than a year ago (before the ETH ETF launch), and I’d greatly appreciate seeing what updated forecasts they might present.

On another note, if you're searching for additional optimism, Cathie Wood, CEO of Ark Invest, anticipates ETH could hit $166,000 by 2030, with BTC reaching $1.3 million.

Nevertheless, I hold a more excited outlook for ETH hitting $51,000. In any case, VanEck's projections are grounded in the belief that by 2030, Ethereum will command a 70% market share of smart contract platforms, fulfilling its potential as a leading open-source global settlement networkThey project Ethereum's revenue will surge from $2.6 billion annually to US$51 billion, facilitated by increases in transaction fees, MEV, and the introduction of “security as a service” with ETH safeguarding other protocols through re-staking

Furthermore, Ethereum is expected to engage considerably with economic activities across finance, banking, payments, the metaverse, social networking, gaming, and infrastructure sectorsIts functionality as a value-storing asset is poised for recognition, enhanced by programmability through smart contracts and cross-chain messaging technology for smart collateralization.

Here’s a summary of the basic, bear, and bull market scenarios:

In my view, a 70% smart contract market share seems fairly reasonable, despite Ethereum currently holding only 58% dominance (with all Layer 2s collectively around 65%). Although SOL has experienced wild price surges, overall market share has remained stable since early 2022.

The Total Value Locked (TVL) dominance will emerge as a key indicator to watch, particularly as institutional players appear genuinely invested in it.

Another metric of interest for institutional and retail investors alike is the traffic generated from ETH ETFs.

If someone had told me a few months ago that ETH would have an ETF but would trade below $3,000, I would have presumed crypto was in a bear market.

While it remains premature to draw conclusions, the sentiment surrounding ETH ETFs seems to be reaching increasingly bullish heights