According to a report by The Block, analysts at JPMorgan highlighted several reasons for Ethereum’s underperformance and suggested that the blockchain may continue to face “intense competition” from other rivals in the future.
Market cap drops to multi-year low
The analyst team at JPMorgan, led by Nikolaos Panigirtzoglou, stated in the report that while the overall cryptocurrency market saw a significant increase during the US election, Ethereum (ETH) performed poorly, lagging behind both Bitcoin (BTC) and other altcoins.
The analysts pointed out that Ethereum’s market cap as a percentage of the overall cryptocurrency market has reached its lowest point in four years, indicating increasing pressure from competitors.
Source: TradingView
Main reasons for underperformance
The analysts identified two main reasons for Ethereum’s lagging performance. Firstly, the intensifying competition from other blockchains, such as Solana and Layer 2 networks, which offer lower transaction fees and higher scalability. Secondly, compared to Bitcoin’s positioning as a store of value, Ethereum lacks a strong narrative.
The analysts stated that even with the EIP-1559 upgrade, which introduces fee reduction and scalability improvements through the use of blobs, network activity is gradually shifting from Ethereum’s mainnet to Layer 2, diminishing the mainnet’s influence.
Furthermore, the increasing competition has driven major decentralized applications (DApps) to build their own specific application blockchains for better performance and lower costs. Uniswap, dYdX, and Hyperliquid have already made moves in this direction, with Uniswap’s upcoming Unichain being particularly significant.
The analysts noted that Uniswap’s departure, as one of Ethereum’s largest gas-consuming applications, could reduce Ethereum’s fee revenue and increase the risk of supply inflation, as a decrease in transactions would lead to a decrease in token burn.
The analysts stated that despite these challenges, Ethereum still holds a leading position in stablecoins, DeFi, and tokenization. However, its ability to maintain this advantage remains to be seen. The report concluded that while tokenization may drive institutional demand for Ethereum, “competition from other networks may remain intense in the foreseeable future.”
Related articles: “Ether Supply Rises to Pre-Merge Levels, Analysts Attribute it to EIP-1559 Upgrade” “Under Pressure, Vitalik Urges Support for Layer 2: Turn Back to ETH”
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