Ethereum (ETH) Forecast for 2023: Is It Time to Sell or Hold?

It has been a grim 2022 for Ethereum (ETH), leaving the bull run of 2021 as a distant memory. ETH hit an all-time high of $4,868 on November 2021. Since then, it has been bearish, culminating in a 2022 low of $880 on June 18.

As 2022 comes rapidly to a close, ETH is down 67.1% year to date. The retreat is in stark contrast to the 398% surge through 2021 that could have been far better had it not been for the late reversal that continued into 2022.

Despite the reversal, ETH holds onto the number two ranking by market cap. According to CoinMarketCap, the market cap stands at 146.53 billion, down from a 2022 high of $461.10 billion (Jan 4, 2022).

NFT Activity, Terra Labs and FTX, the Fed, and Regulators Weigh

For investors looking to enter the crypto environment in late 2021, market conditions deteriorated at a meteoric pace.

Regulatory scrutiny weighed on investor sentiment that spread beyond the crypto market into the Web 3 space.

Ethereum-based NFT trading volumes tanked, pressuring ETH throughout 2022. According to Dune Analytics, Ethereum-based NFT trading volumes peaked at $4,857.4 million in January 2022 before tumbling to just $241.28 million in December, with four sessions remaining.

Heightened regulatory scrutiny contributed to the marked deterioration in the appetite for digital assets. Governments, regulators, and even the IMF called for increased regulatory oversight.

However, the collapse of Terra Labs and FTX ultimately destroyed investor confidence in 2022. There was no surge in demand at depressed price levels, with contagion fears leaving ETH and the broader crypto market in the deep red.

The collapse of FTX may have had less of a price impact than Terra Labs. In contrast, calls for regulatory reform became more intense following the FTX bankruptcy filing.

For ETH and the broader crypto market, the risk-off sentiment coincided with an increasingly hawkish Federal Reserve. Surging inflation resulting from COVID-19 lockdown measures and the war in Ukraine forced the Fed to target consumer prices with an aggressive interest rate trajectory.

Investor jitters over Fed monetary policy soon turned to fears of an economic recession and the threat of a hard landing.

The crypto market headwinds overshadowed Ethereum network updates that included the Merge. Ethereum successfully transitioned from a Proof-of-Work to a Proof-of-Stake protocol.

While the transition removed scrutiny from lawmakers over the effects of ETH mining on the environment, SEC Chair Gary Gensler intimated that the Merge resulted in ETH falling under the classification of a security, another headache for the ETH bulls.

Considering Gensler’s comments, the ongoing SEC v Ripple case became another area of focus. An SEC victory could lead to ETH and the broader crypto market falling under the purview of the SEC. Significantly, a win would likely lead to draconian regulatory measures to curb illicit activity and slow innovation.

2023 Outlook Clouded by Economic and Regulatory Uncertainty

In late 2022, US lawmakers called for a ban on cryptocurrencies, responding to the collapse of FTX. While a US ban looks unlikely, regulatory reforms are likely and could ultimately dictate investor appetite near term.

Following the collapse of Terra Labs and FTX, crypto-related firms will want to restore investor confidence. However, an SEC regulating the digital asset space by enforcement could hinder such efforts.

There is also the threat of other crypto exchanges succumbing to liquidity crunches and ‘bank runs.’

However, more pragmatic market participants will view regulatory reforms as a much-needed step in the evolution of the digital asset space. A robust regulatory environment would help to restore investor confidence.

The SEC v Ripple case could also send a positive message and support a shift in sentiment through 2023.

On the network front, there are further network updates for investors to consider. In November, the Ethereum Federation announced the next set of post-Merge upgrades. Set to take place in H2 2023, a feature of the Shanghai hard fork will be the Beacon Chain Staked Ether (ETH). The hard fork will allow users with pre-Merge-staked ETH to access the tokens and rewards.

While the announcement was positive, the developers provided no timelines. Further updates on the Shanghai hard fork will provide ETH price movement. However, crypto market conditions will likely dictate the effect of network upgrades on ETH.

ETH 2023 Forecasts

Forecasts for 2023 are mixed, with a laundry list of crypto market headwinds creating uncertainty.

A hawkish Fed, a US economic hard landing, regulatory reforms, and an SEC victory in the case against Ripple could see ETH head towards $500 before any recovery. Fears of another crypto-exchange collapse would add further pressure to the bearish trendline.

However, a less hawkish Fed, an economic soft-landing, regulatory reforms supporting innovation, and a Ripple victory would favor a more bullish outlook.

On this basis, a best-case scenario would support an ETH return to $2,000 and give the bulls a look at $2,500. Investors need to be mindful of the implications of a worst-case scenario, where ETH would likely fall below the 2022 low of $880 and target $500 before any meaningful recovery.

WalletInvestor.com forecasts a continued downward trend through mid-2023 before market conditions stabilize.