JPMorgan expects Ethereum (ETH) to outperform Bitcoin (BTC) and other cryptocurrencies in 2024, despite the bank’s overall “cautious” stance towards cryptocurrency markets next year.
We believe that Ethereum will reassert itself next year and regain market share within the cryptocurrency ecosystem.
JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a note on Wednesday.
The main one is the EIP-4844 upgrade or Proto-Danksharding, which is expected to be implemented during the first half of 2024. We believe that this update will be a bigger step towards improving the activity of the Ethereum network, helping Ethereum outperform.
JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a note on Wednesday.
Proto-Danksharding is an initial step towards fully implementing Danksharding, a more efficient sharding method for the Ethereum network.
Unlike the sharding technology that was originally planned, Danksharding avoids the complex process of dividing Ethereum into multiple shard chains.
Instead, it offers “data blocks,” which are temporary data packets attached to blocks, capable of holding more data than blocks but not permanently stored or accessed by the Ethereum virtual machine.
The upgrade is particularly beneficial for Layer 2 networks such as Arbitrum and Optimism, JP Morgan analysts emphasized.
It provides additional temporary data space to increase network capacity and reduce transaction fees for Layer 2 networks on Ethereum.
In essence, data blocks enhance the efficiency of Layer 2 networks without changing the size of Ethereum blocks.
The market has priced in positive factors for the price of Bitcoin
Regarding Bitcoin, the investment bank’s analysts say that the factors that they believe will be positive for Bitcoin in the coming year.
Including the potential approval of core ETFs and the upcoming supply curtailment, it has already been priced in.
Analysts stated that after the 2020 Bitcoin halving, the ratio of Bitcoin price to production cost decreased. They said that a similar move after the halving of 2024 would be logical.
Since the current ratio of Bitcoin price to production cost is around x2 at the moment. This means that the Bitcoin halving event in 2024 is heavily factored into the price
JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a note on Wednesday.
Disappointment in DeFi applications on the Ethereum network
As for decentralized finance (DeFi), the “biggest disappointment” continues to be its inability to penetrate the traditional financial system.
Which is essential for the cryptocurrency ecosystem to move from the digital world to real-world applications, according to JPMorgan analysts.
The largest applications of blockchain are in the traditional financial system, i.e. overnight repurchase transactions via smart contracts on blockchain platforms. Hosted by companies like Broadridge and JP Morgan, it occurs outside of the public blockchain.
The bank indicates here that these applications are built on private blockchain networks. And not public blockchain networks like Ethereum.
In addition, financial asset tokenization services are developing “very slowly,” and are still “largely in an experimental phase.”
It is hampered by divisions, a lack of cooperation and compatibility between platforms, delays in the launch of central bank cryptocurrencies by the Federal Reserve and the European Central Bank, as well as a lack of regulation.
As for the outlook for venture capital (VC) funding in the cryptocurrency space. The fourth quarter of this year saw an improvement in VC funding compared to the rest of the year, which was fairly modest, but this improvement appears “somewhat hesitant.”
However, if this improvement continues into the first quarter of 2024, this will represent a major development that in our opinion heralds the end of the crypto winter.
JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a note on Wednesday.
