At a recent price of about $1,270, Ethereum (ETH -0.42%) is down nearly 75% from the all-time high of $4,891.70 it touched in November 2021. That stratospheric level now seems like a distant memory for Ethereum investors, who enter 2023 uncertain of what's next for the second-largest crypto by market capitalization. Is a potential comeback in the making?

Although the idea that it could nearly triple in value this year to $3,500 might sound outlandish, Ethereum was actually trading around $3,500 as recently as April 2022. But it will be a long, difficult path for it to regain that level in 2023.

Forget about The Merge

If there was one catalyst that was supposed to send Ethereum's price skyrocketing in 2022, it was The Merge  -- the cryptocurrency's much-anticipated transition from a proof-of-work blockchain to a proof-of-stake blockchain. Although The Merge went as planned from a technical standpoint, it didn't from an investment perspective. The meltdown of crypto exchange FTX (FTT 0.04%) occurred about two months after The Merge took place, so we'll never really know what could have been. But we do know what did happen: Ethereum is down by nearly 25% since Sept. 15, the date The Merge took place. 

As a result, investors can basically forget about any price gains driven by that transition this year. Yes, Ethereum has a number of updates planned for the year ahead that will improve the blockchain and increase its efficiency, but none of them will be really earth-shattering. Maybe it's just me, but I can't see Ethereum soaring in price on the basis of hype about "rollups" and "sharding." So we're going to have to look elsewhere for catalysts that are capable of driving major gains.

Flight to quality

One overarching investment trend that could help to buoy the prospects of Ethereum is a flight to quality. If 2022 was the year that investors got burned by holding risky, volatile assets, then 2023 is likely to be the year that they embrace less risky assets. While it might sound crazy to categorize Ethereum as less risky in any way, the fact remains that among cryptocurrencies, there are two that are generally considered to be quality assets on a relative basis: Bitcoin (BTC -0.04%) and Ethereum.

As a result, we can expect that many investors will continue to move their money out of more speculative tokens and into those two trusted coins. The big picture is that institutional investors increasingly consider crypto to be an asset class all its own, and as such, we can expect a flow of institutional money into Bitcoin and Ethereum.

Even at the retail investor level, I think we are going to see money flowing into Ethereum as new investment products and trading platforms are created. One good example is the new Fidelity Crypto platform unveiled by Fidelity Investments in late November, which lets investors trade Bitcoin and Ethereum commission-free.

Creation of new market opportunities

Even this flight to quality, however, probably will not be enough to drive a three-fold return for Ethereum in 2023. What would also be needed is the introduction of a brand-new market opportunity that completely changes the game. Given that Ethereum has been a leader when it comes to creating new market categories such as non-fungible tokens (NFTs), decentralized finance (DeFi), and the metaverse, that type of innovation is not out of the question.

One new market opportunity that has potential involves customer loyalty programs running on the blockchain. Polygon (MATIC -3.61%), a Layer 2 scaling solution for Ethereum, is at the forefront of this trend. The brand-new Starbucks (SBUX -0.60%) Odyssey loyalty program, running on Polygon, just launched in early December. Through this program, customers can earn extras such as NFTs and Web3 experiences. If other brands follow suit, this could jump-start a larger trend and generate renewed interest in Ethereum as the go-to blockchain for brands and consumer-facing businesses.

Another market opportunity involves crypto payments. According to Vitalik Buterin, the co-founder of Ethereum, this is where all the work that has been done to increase transaction speeds and improve scalability for the Ethereum blockchain can really pay off. Basically, once blockchains can consistently process large amounts of transactions faster than the Visa (V 0.03%) payments network, we could see a migration of payments to the blockchain. As might be imagined, this would be a huge win for Ethereum. Encouragingly, Visa released a technical paper at the end of 2022 that outlined the possibility of recurring payments being handled via Ethereum one day.

The outlook for Ethereum

I'm cautiously optimistic about Ethereum in 2023. The overall macroeconomic outlook continues to weigh heavily on all cryptos, and it will be a tough task for Ethereum to surge in value if the economy tips into recession.

However, I'm super-bullish on Ethereum for the long term. The blockchain continues to generate fantastic new market opportunities on a regular basis. If any of these new opportunities turn out to be home runs, then Ethereum might just be a three-bagger in 2023.