Recent reports have revealed that Ethereum has had a challenging run, underperforming compared to other major cryptocurrencies. However, despite this, some positive signs may be on the horizon.

According to a CryptoQuant analyst, Percival, Ethereum’s open interest has increased significantly, indicating rising investor optimism for a potential rally.

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Potential For Ethereum Rally And Longs Benefit

According to the data shared by Percival, Ethereum’s open interest stands at $9.6 billion, marking a 28.57% increase from August, although it is still below the $13 billion recorded in June.

The rise in open interest points to expectations of an upward price movement, with many traders positioning themselves for increased demand.

Percival noted that several factors, including potential Federal Reserve interest rate cuts and a growing focus on the future of tokenization on the Ethereum blockchain, may fuel this uptick.

This shift could drive more interest toward decentralized finance (DeFi) protocols, making Ethereum more attractive for investors looking for long-term gains.

Percival also highlighted that Ethereum’s Relative Strength Index (RSI) is at 61, suggesting that the market is overheated.

A “convergence” between open interest and RSI levels indicates that price corrections will likely be short-lived, providing opportunities for traders to position themselves for a market rebound.

The analyst estimated that Ethereum may experience a correction of around 7% to 9% before rallying again, favoring long positions as traders await a potential rise in both price and demand.

The analyst particularly wrote in a post on the CryptoQuant QuickTake platform:

The convergence of the highest lows in the RSI suggests a potential for a less pronounced correction, estimated to be between 7% and 9%. This scenario favors long positions, with traders patiently waiting for a market rebound to confirm new highs and higher lows.

ETH’s Path To A Bullish Breakout

At the time of writing, Ethereum trades at $2,611, down slightly by 0.1% in the past 24 hours. This comes after a strong week where the cryptocurrency saw a 9.3% increase and a nearly 15% rise over the past month.

According to another prominent crypto analyst, Ali, Ethereum could be on the verge of a significant rally. In a recent post on X, Ali revealed that Ethereum has recently touched the lower boundary of a channel, a level that has historically led to an average 130% price surge.

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According to Ali, should this pattern continue to hold, Ethereum could potentially climb to $6,000 as long as it maintains its key support level of $2,300.

Every bounce off this channel’s lower boundary has historically led to an average 130% price increase for #Ethereum.

If this pattern holds, a similar move could push $ETH to $6,000—provided the key $2,300 support level stays intact. pic.twitter.com/CFpLrQWEih

— Ali (@ali_charts) October 14, 2024

So far, despite ETH’s market’s volatility, the asset has managed to maintain its price above the critical $2,300 support level, which lends credibility to the theory that a bullish breakout could be on the way.

Featured image created with DALL-E, Chart from TradingView

In a new blog post titled “Possible futures for the Ethereum protocol, part 2: The Surge,” Ethereum co-founder Vitalik Buterin outlined an ambitious roadmap aiming to scale Ethereum’s transaction processing capacity to over 100,000 transactions per second (TPS) across Layer 1 (L1) and Layer 2 (L2) solutions. This initiative, known as “The Surge,” seeks to enhance scalability while preserving decentralization and security.

Buterin began by reflecting on Ethereum’s initial scaling strategies, which involved sharding and Layer 2 protocols like state channels and Plasma. At the beginning, Ethereum had two scaling strategies in its roadmap, he wrote, pointing to a 2015 paper that discussed sharding—a method where each node only needs to verify and store a fraction of the transactions. This approach mirrors how peer-to-peer networks like BitTorrent operate.

Simultaneously, Layer 2 protocols were developed to offload computation and data from the main chain while leveraging Ethereum’s security. Rollups emerged in 2019 as a powerful Layer 2 solution, requiring significant on-chain data bandwidth. “Fortunately, by 2019 sharding research had solved the problem of verifying ‘data availability’ at scale. As a result, the two paths converged, and we got the rollup-centric roadmap which continues to be Ethereum’s scaling strategy today,” Buterin explained.

Ethereum Roadmap: The Surge

The Surge aims to achieve several key goals: reaching 100,000+ TPS on L1 and L2, preserving the decentralization and robustness of L1, ensuring that at least some L2s fully inherit Ethereum’s core properties of trustlessness, openness, and censorship resistance, and maximizing interoperability between L2s to make Ethereum feel like a unified ecosystem.

One of the primary techniques to achieve these goals is Data Availability Sampling (DAS). Currently, Ethereum’s L1 data bandwidth is limited, capping rollup TPS at approximately 174. To break this barrier, Ethereum plans to implement PeerDAS, a form of one-dimensional sampling that allows nodes to verify data availability efficiently.

“Our medium-term target is 16 MB per slot, which if combined with improvements in rollup data compression would give us ~58,000 TPS,” Buterin noted. Further into the future, two-dimensional sampling could be adopted to enhance efficiency, albeit with increased complexity. “We need much more work figuring out the ideal version of 2D DAS and proving its safety properties,” he added.

Data compression techniques are also crucial in reducing the data footprint of transactions. These include signature aggregation using BLS signatures, replacing addresses with pointers to historical data, and custom serialization for transaction values. “We can thus represent most currency values very compactly with a custom decimal floating point format, or even a dictionary of especially common values,” Buterin suggested.

Generalized Plasma is another significant component of The Surge. Plasma allows for off-chain transactions with on-chain security assurances. By incorporating SNARKs (Succinct Non-interactive Arguments of Knowledge), Plasma becomes more powerful and generalizable. “Even if you can only protect a subset of assets […] you’ve already greatly improved on the status quo of ultra-scalable EVM, which is a validium,” he stated.

Buterin also emphasized the need to mature L2 proof systems. Most rollups today are not fully trustless, relying on security councils that can override proof systems. He stressed the importance of reaching “Stage 2” rollups, which are fully trustless and secure. This involves formal verification, using mathematical techniques to prove that proof systems align with the EVM specification.

“We can make a formally verified SNARK prover of a minimal VM,” he explained. Additionally, deploying multiple proof systems, or “multi-provers,” ensures redundancy and security. “If the proof systems agree, the security council has no power,” Buterin highlighted.

Enhancing cross-L2 interoperability is also a key focus. One major challenge is making the L2 ecosystem seamless for users. Buterin proposed several improvements, such as chain-specific addresses that include the chain identifier to simplify cross-L2 transactions, standardized payment requests for easy and secure requests for payments across different chains, and developing protocols like ERC-7683 and RIP-7755 for efficient asset exchanges and gas payments.

Buterin also advocated for light clients and keystore wallets to allow users to verify chains without relying on RPC providers and to simplify key management across chains. “Our ability to handle this problem successfully is a test of our ability to stick together as a community,” Buterin asserted.

While L2 scaling is vital, enhancing L1 remains crucial for Ethereum’s security and economic viability. Buterin discussed strategies like increasing the gas limit, making specific operations cheaper through proposals like EOF (EVM Object Format), and exploring native rollups. “A big question that any L1 scaling roadmap needs to answer is: what is the ultimate vision for what belongs on L1 and what belongs on L2?” he posed, emphasizing the need for balance to maintain Ethereum’s core strengths.

Buterin concluded, “Now our task is to bring the rollup-centric roadmap to completion, and solve these problems, while preserving the robustness and decentralization that makes the Ethereum L1 special.”

At press time, ETH traded at $2,625.

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In an interview with Aaron Arnold, founder of Altcoin Daily, Matt Hougan, the Chief Investment Officer (CIO) of Bitwise Asset Management, shared his optimistic outlook on Ethereum for 2025. Amidst a crypto landscape where Bitcoin and emerging high-performance blockchains like Solana, Sui, and Aptos dominate headlines, Hougan positions Ethereum as a “contrarian bet” that may offer significant returns for investors willing to look beyond current market sentiments.

Why Ethereum Is The Best “Contrarian Bet”

Hougan acknowledged Ethereum’s unique position within the crypto market. He describes Ethereum as “the asset that people love to hate; it’s kind of the middle child of crypto.” While Bitcoin maintains its status as the original cryptocurrency and a store of value, newer blockchains capture attention with promises of superior performance and innovative features. Ethereum, meanwhile, is often criticized for issues like high fees and the migration of activity to Layer-2’s, leading some to view it as outdated technology struggling to keep pace with its competitors.

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However, Hougan challenges this narrative by emphasizing Ethereum’s foundational role in some of the most critical and rapidly growing areas of the crypto industry. “When you step back and look at it, what are the killer apps of crypto outside of Bitcoin? They are things like stablecoins, DeFi [decentralized finance], and tokenization,” he notes. Despite the emergence of alternative platforms, Ethereum remains the leading blockchain supporting these applications. It is the primary choice for developers and institutions. “If you’re a large traditional financial player looking to build on a public blockchain what blockchain are you going to choose most likely? You’re going to choose Ethereum,” Hougan claims.

The Bitwise CIO attributes Ethereum’s underperformance to a transitional phase in its development. “I think Ethereum has sort of passed over this year because it’s going through this complex teenage adjustment in its architecture,” he explained. This “teenage adjustment” refers to Ethereum’s ongoing upgrades.

Hougan remains bullish on Ethereum’s long-term prospects, considering it a strong contrarian play for 2025. “Ethereum is the best contrarian bet in crypto right now,” he stated via X. Hougan believes that the market’s current focus on Bitcoin and newer blockchains has caused many to overlook Ethereum’s enduring strengths and potential for growth. He asserts that as the blockchain completes its architectural upgrades, it will be better positioned to capitalize on its dominant role in key sectors like stablecoins and DeFi.

When asked whether he believes Ethereum will break it’s all-time highs, Hougan expressed cautious optimism. “I certainly think we could see that in 2025 if we see significant growth in the application space,” he responded. However, he emphasized that Ethereum’s ability to reach new price levels is more conditional compared to Bitcoin. “I think it’s maybe more conditional than Bitcoin,” he admitted.

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Key among these conditions is the enactment of favorable stablecoin legislation. “We need to see positive stablecoin legislation that helps that move aggressively into the mainstream,” Hougan stresses. Regulatory clarity and support for stablecoins could lead to increased adoption and integration into the mainstream financial system, directly benefiting Ethereum as the primary platform for these digital assets. Additionally, he points to the necessity for continued growth in decentralized applications (dApps) built on the Ethereum network. “We need to see more growth in apps that are built on the Ethereum ecosystem,” he added.

Hougan advises investors to focus on the overall growth and development of the Ethereum ecosystem rather than short-term concerns like fee structures or the migration to Layer 2 solutions. “I don’t think that’s the game to play with Ethereum right now,” he remarks regarding worries about fees and network congestion. Instead, he suggests that the intrinsic value of Ethereum will become apparent as its ecosystem expands and matures. “Think about the growth of the ecosystem, and the value will sort itself out,” he asserts.

Hougan stated that while he remains bullish on both Bitcoin and Ethereum, he sees a unique opportunity with Ethereum due to its current undervaluation and the market’s overlooking of its potential. “I know I just made a very bullish case for Bitcoin; now I’m making a very bullish case for Ethereum. I am bullish for both, and I think the setup for both is pretty good,” he concludes.

At press time, ETH traded at $2,624.

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