According to a report by The Block, analysts at JPMorgan pointed out several reasons for the underperformance of Ethereum and believed that the blockchain may continue to face “intense competition” from other contenders in the future.
Market share drops to multi-year low
In their report, led by analyst Nikolaos Panigirtzoglou, the JPMorgan team stated that while the overall cryptocurrency market surged during the US election, Ether (ETH) performed poorly, lagging behind not only Bitcoin (BTC) but also other altcoins.
The analysts noted that the market share of Ether in the entire cryptocurrency market has currently dropped to the lowest point in four years, highlighting the increasing pressure from competitors.
Source: TradingView
Primary reasons for underperformance
The analysts identified two main factors leading to Ethereum’s lagging performance: intensifying competition from blockchains such as Solana and Layer 2, which offer lower network transaction fees and higher scalability; and a lack of strong narrative compared to Bitcoin’s positioning as a store of value.
The analysts stated that even though Ethereum has introduced the EIP-1559 upgrade to reduce fees and improve scalability, network activity is gradually shifting from the Ethereum mainnet to Layer 2, diminishing the influence of the mainnet.
Furthermore, the growing competition has driven major decentralized applications (DApps) to build their own specific application blockchains to achieve better performance and lower costs. Uniswap, dYdX, and Hyperliquid have already taken this approach, with the upcoming launch of Unichain by Uniswap being particularly significant.
The analysts mentioned that Uniswap’s departure as one of the largest gas-consuming applications on Ethereum could reduce transaction fee revenue and increase the risk of supply inflation, as a decrease in transactions would lead to a decrease in token burn.
The analysts acknowledged that despite these challenges, Ethereum still maintains a leading position in stablecoins, DeFi, and tokenization. However, its ability to sustain 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 Reaches Pre-Merge Levels, Analysts Attribute it to the EIP-1559 Upgrade” and “Vitalik Urges Support for Layer 2 Amid Public Pressure: ‘Come Back to Support ETH’.”
