Hotcoin Research | Fusaka Upgrade is imminent, analysis and outlook on Ethereum's long and short positions

This article will review the recent performance of Ethereum, deeply analyze the current favorable and unfavorable factors facing Ethereum, and look ahead to Ethereum's prospects and trends by the end of the year, next year, and even in the medium to long term. It aims to clarify the fog for ordinary investors, grasp the trends, and provide some reference for making more rational judgments during this critical turning point.

I. Introduction

This week, developers from around the world are gathering in Buenos Aires to attend the annual Ethereum developer conference. Additionally, Ethereum is set to undergo a significant upgrade codenamed "Fusaka" in December, which will increase data throughput by eight times, enhance network security, and introduce new development tools. At the same time, increased institutional participation is bringing strong capital inflows, and the RWA market is expected to provide a new growth engine for Ethereum.

However, due to the uncertainty in the macro environment, Ethereum's price has fallen into a downward channel since early October, dropping from a new high of $4,900. Especially after the "10·11 crash" black swan event, the price of ETH has struggled, recently hovering around $3,000, down over 30% from its peak. The funds that previously supported ETH's rise are now withdrawing: the stock of the Ethereum Treasury Company (DAT) has plummeted, turning from profit to loss, with some shareholders selling off to cash out; multiple ETH spot ETFs globally are experiencing continuous net outflows, and traditional institutional funds are becoming more cautious. Meanwhile, the Ethereum ecosystem is frequently encountering challenges: the total locked value has decreased by over 20% since October, on-chain stablecoins have faced consecutive depegging incidents, and DeFi protocols have been repeatedly thwarted.

II. Analysis of Ethereum's Recent Performance

In the third quarter of this year, Ethereum's price surged alongside rising market sentiment, climbing from about $2,500 at the end of June to nearly $4,950, the year's peak, in late August. However, entering October, the combination of macro and endogenous market risks triggered an "epic crash." On October 11, the unexpected announcement by the U.S. to impose additional tariffs on China acted as a catalyst, leading to a global sell-off of risk assets, with the crypto market experiencing a sharp decline, and Ethereum's price plummeting over 20% to about $3,380. Although the market rebounded afterward, liquidity gradually diminished, and overall, it has been trending downward. As of now, the ETH price is around $3,000, down more than 30% from the August high.

Source: https://www.tradingview.com/symbols/ETHUSD

Tightening Macro Environment: Behind this round of adjustment, the tightening of macro liquidity and the shift in interest rate expectations towards a hawkish stance are significant factors. The Federal Reserve sent a strong signal in November, cooling market expectations for a rate cut in December, leading to a notable decline in risk appetite. The prosperity of the crypto market in the third quarter was largely due to institutional funds "speculating on new assets"—multiple Ethereum spot ETFs were launched in the summer, attracting traditional investors, coupled with several listed companies announcing substantial purchasing plans, creating strong buying support. However, as October began, the uncertainty in the macro environment increased, with safe-haven funds flowing back into the dollar and U.S. Treasuries, rapidly depleting the marginal increment in the crypto market.
ETF Fund Outflows: According to SoSoValue data, by mid-November, the total holdings of Ethereum spot ETFs were approximately 6.34 million units (worth $192.8 billion), accounting for 5.19% of the ETH supply. However, this month, the funds have shifted from net inflows to net outflows, with the scale of withdrawals significantly exceeding new investments, and the maximum daily outflow reached $180 million. This contrasts sharply with the steady capital inflow seen in July and August. ETF investors are primarily long-term holders, and the continuous net redemptions over several days indicate that the demand increment for ETH from traditional financial channels is weakening. Their withdrawal not only directly reduces buying pressure but may also amplify short-term volatility.

Source: https://sosovalue.com/assets/etf/us-eth-spot

DAT Company Increment Shrinking: There is also differentiation within the sector. As of mid-November, the overall strategic reserve of Ethereum held by DAT was about 6.24 million units, accounting for 5.15% of the supply, with the pace of accumulation noticeably slowing in recent months. Among the "whales," the pioneer BitMine has become almost the only major player still aggressively buying ETH, having added 67,000 units in the past week. In contrast, another leading company, SharpLink, has ceased its buying activities after acquiring 19,300 units in mid-October, with an average holding cost of about $3,609, now showing a paper loss. Furthermore, some small and medium treasury companies have been forced to sell off to survive: for example, "ETHZilla" sold about 40,000 ETH at the end of October to repurchase its own stock, hoping to narrow the price discount. The treasury industry has shifted from previous broad expansion to polarization: capable giants can still maintain buying pressure, while smaller players are trapped in liquidity constraints and debt pressures, forced to reduce positions to cut losses.

Source: https://www.strategicethreserve.xyz/

Leverage Clearing and Selling Pressure Emerging: In the secondary market, the rapid retreat of leveraged funds has further intensified the selling pressure on ETH. During the October crash, the positions of whales like "Brother Ma Ji" who had been continuously long were forcibly liquidated, spreading panic in the market and somewhat undermining bullish confidence. According to Coinglass statistics, the open interest of ETH contracts has plummeted nearly 50% since the August peak, indicating that leveraged funds are rapidly deleveraging, which means that both speculative enthusiasm and liquidity in the market are cooling. Not only are leveraged longs retreating, but long-term holders are also beginning to adjust their positions. On-chain analysis firm Glassnode reported that long-term holders who have held ETH for over 155 days are recently selling about 45,000 ETH (approximately $14 million) daily, the highest selling level since 2021, indicating that some older coins are being cashed out at high prices. This series of signs shows that the bullish forces within the market are significantly weakened.
Ethereum Staking Retreat: Data from the Beacon chain shows that the number of active Ethereum validators has decreased by about 10% since July, marking the first significant decline in the validator scale since the transition to POS in 2022. The main reasons are that in the first half of this year, the significant rise in ETH led many node operators to choose to exit staking to realize profits, with a surge in validator exit queues in late July, reaching a historical high for daily ETH exits; secondly, the recent annualized staking yield has dropped to about 2.9%, while on-chain lending rates have risen, squeezing the arbitrage space, and the price support for ETH from staking has correspondingly weakened.

Source: https://beaconcha.in/

Stablecoins and DeFi Turbulence: The issues within the Ethereum ecosystem have also been prominently exposed, further undermining investor confidence. On October 11, the day of the crash, USDe collapsed due to the failure of its circular lending arbitrage mechanism, dropping to as low as $0.65. Although it quickly recovered to near $1, it triggered a chain reaction. Subsequently, the decentralized stablecoin sector witnessed multiple risk events: the xUSD issued by the Stream protocol severely depegged due to the underlying hedge fund's collapse, and the USDC, which follows a similar strategy, fell to $0.38 during a liquidity crisis, facing risks of not being redeemable at a 1:1 ratio; another algorithmic stablecoin, deUSD, also failed to maintain its peg, all dropping below their pegged prices. These newly minted stablecoins, once filled with hope, faltered under extreme market conditions, exposing the vulnerabilities and black-box risks of "delta-neutral" stablecoin models in such scenarios. The consecutive failures of stablecoins have dealt a heavy blow to DeFi. Since mid-October, several lending and yield aggregation protocols have reported bad debts and a sharp decline in Total Value Locked (TVL): the Morpho protocol's USDC treasury had to delist related strategies due to the associated Elixir stablecoin pool's value dropping to zero, resulting in a loss of about 3.6% of the treasury's assets; the established lending protocol Compound also faced bad debt pressure due to the collapse of some long-tail stablecoins, triggering a liquidation crisis. The Balancer protocol suffered a hacker attack at the end of October, resulting in losses exceeding $100 million. These events have led to a continuous outflow of funds from DeFi. By early November, the on-chain TVL of Ethereum had dropped from a peak of $97.5 billion to about $69.5 billion, evaporating over $30 billion in assets in just over a month.

Source: https://defillama.com/chain/

Overall, Ethereum has undergone a "double kill" test over the past two months: external macro conditions have tightened, the three main buying forces (ETFs, treasury companies, on-chain funds) are simultaneously under pressure, and the internal ecosystem has faced turmoil in stablecoins and security. Amidst skepticism, both the price and market capitalization of Ethereum are under pressure.

III. Unfavorable Factors: Macro Shadows and Potential Concerns

It is undeniable that the unfavorable shadows currently hanging over Ethereum may continue to exert pressure on ETH prices and ecological development in the short to medium term.

1. Macro Tightening and Capital Withdrawal

The biggest unfavorable factor comes from the macro environment. Major central banks worldwide are maintaining cautious interest rate policies amid unstable inflation, and expectations for a rate cut in December have been thwarted, leading to heightened market risk aversion. The forces that drove ETH's rise in the first half of this year (ETF purchases, DAT buying, on-chain leverage accumulation) have now become potential sources of selling pressure. If the macro environment remains cold in the next six months, it is possible that more institutions will indirectly reduce their ETH positions by redeeming ETFs or selling treasury company stocks, resulting in a continuous outflow of funds. Particularly, the treasury model itself has certain vulnerabilities: companies like BitMine are currently trading at a significant discount, and shareholder confidence is low. If their financing chain breaks or they face repayment pressure, the risk of being forced to sell ETH for cash cannot be ignored. In summary, until a turning point in global liquidity is observed, the headwinds in the capital market may continue to overshadow Ethereum.

2. Competition and Diversion Effects

Other public chains like Solana and BSC have diverted speculative funds to some extent. Additionally, the rise of cross-chain protocols and application chains like Plasma, Stable, and Arc has weakened some of Ethereum's appeal to project teams and users. With the emergence of modular blockchain concepts, some projects are even building their own sovereign Rollups, no longer relying on Ethereum's security. Furthermore, within the Layer 2 space, there is competition among various Rollups: Arbitrum and Optimism are offering high incentives or airdrops to compete for users and traffic, which may lead to an "L2 war," and the success of L2 does not directly equate to an increase in the main chain's ETH price; rather, it may dilute some value. For instance, some L2s have issued independent tokens for fee payments, which could impact the long-term demand for ETH as gas. Of course, ETH remains the primary settlement asset for now, and short-term competitive shocks are limited, but it is a concern for the long term.

3. Regulatory and Policy Uncertainty

The regulatory environment is also a Damocles sword hanging overhead. Although SEC Chairman Paul Atkins has stated that Ethereum should not be considered a security, if the regulatory stance changes in the future, Ethereum's compliance status may be called into question, which could affect institutional participation enthusiasm. Additionally, discussions on regulating DeFi are underway in various countries, and features like decentralized stablecoins and anonymous transactions may face stricter restrictions or even crackdowns. These policy uncertainties could become constraints on the development of the Ethereum ecosystem. For example, if certain countries prohibit banks from participating in staking or restrict retail investors from buying and selling crypto assets, it would directly reduce potential capital inflows. Moreover, Europe's MiCA regulations impose requirements on stablecoin issuance and DeFi services, which may increase compliance costs for Ethereum projects.

4. Internal Ecological Risks and Trust Rebuilding

After a series of upheavals, the trust deficit in the Ethereum ecosystem will take time to mend. On one hand, the frequent depegging events of stablecoins have left DeFi users wary of high-yield products. Currently, the overall market risk appetite has decreased, and conservative strategies are prevalent, with users favoring centralized platforms or mainstream stablecoins like USDT/USDC, which will lead to liquidity shortages and limited growth for many innovative protocols on Ethereum in the near term. On the other hand, frequent security incidents (such as hacks and vulnerabilities) have raised questions about the security of Ethereum's application layer; each major attack or collapse often leads to users of related protocols selling ETH or withdrawing funds. It can be expected that in the near future, risk governance will become a focal point for the Ethereum community, and project teams may strengthen reserves and insurance measures to restore user trust. However, once a bearish market mentality takes hold, investors often require more positive stimuli (such as price rebounds or new application breakthroughs) to be willing to reinvest.

In summary, Ethereum is currently in a phase of bottoming out amid internal and external challenges. The retreat of macro capital, industry competition, regulatory pressure, and issues within its own ecosystem may continue to suppress ETH's performance in the short term. These unfavorable conditions will require time and sufficient positive stimuli to resolve. During this process, the market may still experience pain and fluctuations.

IV. Favorable Factors: Upgrade Drivers and Fundamental Support

Despite the recent turmoil, Ethereum's foundational position as the largest public chain ecosystem remains solid, with its network effects, technical foundation, and value consensus demonstrating resilience over the long term.

1. Network Effects and Ecological Resilience

Active Development and Innovation: The number of active developers and projects on Ethereum remains the highest in the industry, with a continuous emergence of new applications and standards. During the DevConnect conference, several important developments drew community attention: Vitalik reiterated Ethereum's principles of "trustworthy neutrality and self-custody"; topics such as account abstraction and privacy protection became focal points.
The Layer 2 Ecosystem is Thriving: Although the total TVL has recently faced setbacks, the user activity and transaction volume of Layer 2 networks like Arbitrum, Optimism, and Base remain relatively high, indicating that there is still potential demand on-chain in a low-cost environment. After the Fusaka upgrade, as the cost of data publishing decreases further, the economic model of Rollups will become more sustainable, attracting more users and projects to deploy on Ethereum's Layer 2, thereby benefiting the main chain's value.
Security and Decentralization of the Ethereum Network: The total amount of staked ETH on-chain still exceeds 35 million units, accounting for about 20% of the supply, providing solid POS security guarantees; even though the number of validators has slightly decreased recently, new institutional node operators are filling the gaps. In the future, more traditional institutions will hold and stake ETH to obtain stable returns, creating a continuous "reservoir" of funds for Ethereum.
Fee Burning Maintains ETH Deflation: The EIP-1559 fee burning mechanism sustains the deflationary attribute, which is expected to amplify ETH price elasticity, giving it characteristics similar to "digital asset inflation hedging."

It is evident that Ethereum's strong network effects (developers + users + capital network) and increasingly refined economic model form the underlying logic that continues to attract long-term investors.

2. Major Upgrades and Improvements

Fusaka Upgrade Expands Capacity and Reduces Costs: The Fusaka upgrade is regarded as the boldest scaling attempt in the history of the Ethereum network. According to the plan, this upgrade will be activated on the mainnet on December 4. The highlight of Fusaka is the introduction of Peer Data Sampling (PeerDAS) technology, which allows each node to store only about 1/8 of the total transaction data, while the rest is verified through random sampling and reconstruction, significantly reducing the storage bandwidth requirements for each node. This change is expected to increase the number of data blobs that a single Ethereum block can accommodate by eight times, greatly reducing the cost of submitting transaction data for L2 Rollups. In other words, Fusaka will further expand data capacity and lower gas fees, directly benefiting Layer 2 networks and users such as Arbitrum and Optimism.
Other Key Improvements: In addition to the core PeerDAS, this upgrade includes several key improvements: adjustments to the blob economic model, enhanced DoS resistance to limit extreme transactions and block sizes, and new tools for users and developers; EIP-7951 natively supports P-256 elliptic curve signatures, improving compatibility with hardware wallets and mobile devices, and CLZ instruction optimizations for contract algorithms.

If all goes well, Fusaka may become another milestone in Ethereum's journey towards its vision of a global settlement layer, following the Merge in 2022 and the Shanghai upgrade in 2023, laying a technical foundation for the next growth cycle.

3. New Application Trends and Value Consensus

Enhancement of On-Chain Practical Value: With improvements in Ethereum's performance and reduced fees, some application areas that were once promising but struggled to scale due to cost issues are expected to regain vitality. For example, blockchain gaming, social networks, and supply chain finance platforms that require high-frequency small transactions will be more willing to choose the upgraded Ethereum or its L2 as their underlying architecture.
Continuous Innovation in DeFi: Represented by Sky (formerly MakerDAO), DeFi protocols are actively introducing compliant assets: through sub-projects like Spark, Grove, and Keel, they are expanding into areas such as stablecoin lending, government bond investments, and inter-protocol settlements. The leading DEX Uniswap recently activated a fee switch through community voting, charging a 0.15% protocol fee on certain pools to accumulate treasury funds. This marks the beginning of DeFi protocols exploring sustainable profit models, empowering governance tokens, and indirectly revitalizing the Ethereum network. Additionally, Aave plans to launch version V4, introducing cross-chain functionality and more refined risk management. Once the market environment improves, a more powerful and better risk-controlled DeFi 2.0 is expected to attract a new wave of returning users.
Increased Recognition and Gradual Policy Clarity: The approval of U.S. ETFs, the opening of retail trading in places like Hong Kong, and strong demand for stablecoins in emerging markets all present growth opportunities for Ethereum. Especially in high-inflation countries (such as Argentina and Turkey), stablecoins and payment applications on the Ethereum network are becoming important tools for residents to combat inflation and facilitate cross-border remittances, reflecting real-world utility and subtly promoting a global value consensus for ETH.

In summary, despite experiencing short-term setbacks, Ethereum's long-term value support remains intact, and its core position in the global blockchain landscape has not been shaken. These favorable factors may not immediately reverse the market trend, but they are like seeds buried under snow, which may quickly sprout and grow once the spring breeze blows.

V. Outlook and Conclusion

Based on the above analysis, we make the following judgments and outlooks for Ethereum's future trajectory:

Short-term (by the end of this year): Ethereum is likely to maintain a weak oscillation tone, showing signs of bottoming out within a range, but a significant rebound is unlikely. The Fusaka upgrade itself is a well-anticipated positive, and the market has largely digested it, so it is unlikely to reverse the trend solely based on upgrade news. However, considering that ETH prices have fallen over 30% from their highs, there is technical overselling, and the pressure for short sellers to take profits is increasing, leaving limited room for further declines before the end of the year. If no new major negative macro factors emerge (such as an unexpected interest rate hike), investor confidence may slightly recover, and ETH could slowly rise above $3,500 for consolidation before the year ends. It should be noted that as the year-end approaches, liquidity may tighten, and the height of any rebound lacking volume support may be limited, with the $3,500 level being an important resistance.

Mid-term (2024 through the first half of 2025): It is expected that in the first half of 2024, Ethereum will undergo a bottoming and accumulation phase, with a gradual strengthening anticipated in the second half. Specifically, in the first quarter of next year, ETH may continue to oscillate, and factors such as tax-related selling pressure and institutional earnings report season may disrupt the market in January. However, around the middle of the year, the situation may change: if inflation decreases and drives the Federal Reserve to cut interest rates, the marginal improvement in the global liquidity environment will benefit the rebound of risk assets, including ETH. At that time, combined with a recovery in risk appetite ahead of the U.S. midterm elections, ETH may have the opportunity to initiate a new upward trend, rising to the $4,500-$5,000 range.

Long-term (end of 2025 and beyond): Looking further ahead, Ethereum is still expected to reach new highs in the next complete bull market cycle, solidifying its position as the "global value settlement layer." From the second half of 2025 to 2026, if the macro environment becomes more accommodative alongside the large-scale application of blockchain, ETH prices have the potential to move towards the $6,000-$8,000 range. This judgment is based on the following logic: First, after the Fusaka upgrade, Ethereum's continuous upgrades, such as Verkle trees, PBS proposals, and full sharding, will continuously improve performance and reduce costs, with technological dividends attracting a massive influx of new applications and users, providing solid support for value enhancement. Second, Ethereum's network effects are accelerating in a snowball effect, where more users attract more developers, leading to more assets and applications, creating a virtuous cycle. In the long run, Ethereum is highly likely to become the foundational network supporting trillions of dollars in economic activity, at which point the demand for ETH (for gas payments, collateral, and value storage) will far exceed current expectations. Additionally, the characteristic of ETH as a productive asset (which can be staked for yield) is particularly attractive to institutions; once the institutional environment matures, large pension funds and sovereign wealth funds may trend towards allocating ETH, similar to current allocations in real estate and equities. This will bring in a new wave of massive incremental capital, pushing ETH towards a higher value center.

Conclusion: As a cornerstone of the crypto world, Ethereum has undergone several cycles of bull and bear markets, emerging reborn each time amidst skepticism. The interplay of favorable and unfavorable factors will eventually become clear, and time will favor technology and value. After completing self-renewal and weathering market trials, a stronger Ethereum may once again stand at the center of the stage in the coming years, continuing to write a new chapter of brilliance.

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