JPMorgan: Ethereum could outperform Bitcoin next year

• Ethereum could outperform Bitcoin and other cryptocurrencies by 2024, according to JPMorgan analysts.

• This prediction comes after Ethereum’s EIP-4844 upgrade next year.

JPMorgan Chase expects Ethereum to outperform Bitcoin and other cryptocurrencies in 2024, although the bank remains "cautious" about the crypto market overall in the coming year.

“We believe Ethereum will regain momentum next year and recapture market share in the crypto ecosystem,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a note Wednesday. “The primary catalyst is the EIP-4844 upgrade, or Protodanksharding, expected in the first half of 2024. We believe this upgrade could be a larger step toward improving Ethereum network activity, helping Ethereum outperform.”

Protodanksharding is the first step towards the full implementation of Danksharding, a more efficient form of sharding for Ethereum. Unlike the originally planned sharding technology, Danksharding avoids the complex process of splitting Ethereum into multiple shard chains. Instead, it introduces data blobs, temporary data packets attached to blocks that can hold more data than blocks, but are not permanently stored or accessed by the Ethereum Virtual Machine.

JPMorgan analysts reiterated that the upgrade is particularly beneficial for layer 2 networks such as Arbitrum and Optimism because it provides additional temporary data space to increase network throughput and reduce transaction fees for layer 2 networks on Ethereum. Essentially, data blobs increase the efficiency of layer 2 networks without changing the Ethereum block size.

Bitcoin price halving

JPMorgan analysts said factors that are seen as bullish for Bitcoin next year, including the potential approval of a spot ETF and the upcoming halving, are already priced in.

The analyst mentioned that after the 2020 halving, the ratio of Bitcoin’s market price to production costs fell, and said a similar move after the 2024 halving is reasonable.

“Considering that the current ratio of Bitcoin price to production cost is approximately 2.0x, this means that the 2024 Bitcoin halving event is already largely reflected in the price,” the analysts concluded.

DeFi’s “biggest disappointment”

JPMorgan analysts said decentralized finance’s “biggest disappointment” remains its inability to hack into the traditional financial system, which is necessary for the crypto ecosystem to transition from crypto-native applications to real-world applications.

“The largest application of blockchain to traditional finance, overnight repo trading via smart contracts on blockchain platforms hosted by firms such as Broadridge and JPMorgan, has primarily occurred outside of public blockchains,” the analysts said. Furthermore, tokenization has been “relatively slow” to develop and remains “largely experimental, hampered by fragmentation, lack of collaboration and interoperability between platforms, delays in the launch of central bank digital currencies by the Federal Reserve and the European Central Bank, and a lack of regulation.”

Cryptocurrency VC Investment and Financing Prospects

While venture capital funding in the cryptocurrency space improved in the fourth quarter of this year compared to the rather sluggish rest of the year, the improvement appears “fairly preliminary” in the eyes of JPMorgan analysts.

“That being said, if this improvement continues into Q1 2024, it would represent a significant development that we believe would signal the end of the crypto winter,” the analysts said.