Bitcoin, often hailed as the pioneer of cryptocurrencies, kicked off the year with a strong surge in price, closely followed by Ethereum. However, as the months progressed, Bitcoin saw a slight retracement while Ethereum experienced a more significant dip. This shift in fortunes can be attributed to various factors, including the impact of Bitcoin’s highly anticipated halving event and Ethereum’s transformative Deneb-Cancun upgrade.

The report from Fidelity Digital Assets suggests that while Bitcoin’s short-term outlook remains positive, the market has seen increased selling pressure from miners capitalizing on elevated spot prices. Despite this, key indicators such as trading above the 200-day moving average and a favorable golden cross formation indicate a resilient market sentiment. However, long-term holders may contribute to further selling pressure if Bitcoin reaches an all-time high, as 99% of addresses are currently in profit.

One of the key factors influencing Bitcoin’s current trajectory is the anticipation surrounding its 2024 halving event. This event, which occurs roughly every four years, is when the reward for mining new Bitcoin blocks is halved, thereby reducing the rate at which new coins are introduced into circulation. While this has historically led to upward price movements, miners are now cashing in on the elevated spot prices, contributing to the current sell pressure in the market.

Despite these challenges, Fidelity’s report paints a positive picture for Bitcoin in the short term. The coin is trading above its 200-day moving average and maintains a healthy position, with a price 156% higher than its realized price. Moreover, the formation of a golden cross in October 2023 suggests favorable market sentiment. However, the report cautions that long-term holders are adding to the selling pressure, with 99% of addresses currently in profit.

On the Ethereum front, the Deneb-Cancun upgrade, implemented in March 2024, has had a significant impact on the network’s fundamentals. This upgrade, aimed at improving scalability and transaction throughput, has been well-received by users, leading to a 55% price increase for Ethereum in Q1. Short-term price signals remain positive, with Ethereum trading above its 200-day moving average and boasting a golden cross formed in November 2023.

One notable outcome of the Deneb-Cancun upgrade is the acceleration of Layer 2 adoption on the Ethereum network. Layer 2 solutions, which aim to increase transaction throughput and reduce fees, have seen a surge in usage, with Layer 2 transactions accounting for 80% of all transactions in the Ethereum ecosystem. This has led to a substantial drop in fees from Layer 2 platforms, making transactions more affordable for users.

On the Ethereum front, the Deneb-Cancun upgrade has been a game-changer, significantly impacting the network’s fundamentals. This upgrade, coupled with positive short-term price signals and growing on-chain metrics, has propelled Ethereum’s performance in the first quarter. Notably, the Ethereum network has maintained a higher rate of burn than issuance since The Merge in September 2022, leading to a reduction of nearly 450,000 ETH from circulation.

Moreover, the report highlights the increasing interest in staking, with a notable 8% uptick in developers embracing this approach in Q1. Changes such as the introduction of a churn limit cap aim to foster long-term network health, making staking more accessible to a broader range of participants. With net-negative issuance indicating growth in staked Ether and the accelerated adoption of Layer 2 solutions, Ethereum’s long-term deflationary potential appears promising.

As both Bitcoin and Ethereum continue to evolve, it’s crucial for investors to stay informed and adapt to changing market conditions. Whether you’re a seasoned trader or a newcomer to the cryptocurrency space, understanding the dynamics of these leading digital assets can provide valuable insights for navigating the ever-changing landscape of decentralized finance.