JP Morgan says Ethereum may outperform Bitcoin and other altcoins come 2024 because of the upcoming EIP-4844 upgrade next year.
The upgrade will involve Protodanksharding, an initial step toward the full implementation of Danksharding, a more efficient form of sharding for Ethereum.
Danksharding bypasses the complex process of splitting Ethereum into multiple shard chains and instead directly introduces data blobs which are temporary data packets attached to blocks. These are capable of holding more data than blocks, but not permanently stored or accessed by the Ethereum virtual machine.
“We believe that next year Ethereum will re-assert itself and recapture market share within the crypto ecosystem,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a note on Wednesday.
“The main catalyst is the EIP-4844 upgrade or Protodanksharding, which is expected to take place during the first half of 2024. We believe that this upgrade will likely prove a bigger step towards improving Ethereum network activity, thus helping Ethereum to outperform.”
Although it works for Layer 1 networks like Ethereum, the upgrade is particularly beneficial for Layer 2 networks like Arbitrum and Optimism. According to the analysts, this is because it provides an additional temporary data space to increase network throughput and reduce transaction fees for Layer 2 networks on Ethereum.
Why Ethereum Could Beat Bitcoin
One of the arguments put forward by the analysts for Ethereum’s expected performance is that Bitcoin halving is already priced in. Bitcoin halving is a significant event in the life cycle of Bitcoin.
Historically, the event is followed shortly after by a Bitcoin bull cycle that can make the price reach new highs. JP Morgan analysts believe the event won’t make much difference as its effect is already factored into Bitcoin’s current rally, hence Ethereum can beat the top coin.
“And given the current ratio of the bitcoin price to production cost is around x2.0 at the moment, this would imply that the 2024 bitcoin halving event is largely in the price,” the analysts concluded.
They also added that venture capital funding which is critical in the crypto space has improved towards the end of the year, but it may not continue into next year. However if it does continue into Q1 2024, it may be good for crypto.
“That said, to the extent this improvement continues into the first quarter of 2024 that would represent a significant development that would herald in our opinion the end of the crypto winter,” the analysts said.
Ethereum’s Past Upgrades
Ethereum has undergone many upgrades in the past, all of which promised to improve the network’s scalability and reduce cost of transaction. The latest upgrade was the Shanghai Upgrade which was expected to usher in staking to the Ethereum blockchain.
It was predicted that the staking feature would attract more users to the network, causing the price of ETH to rise. It was also expected that migrating to a proof-of-stake network would improve the overall efficiency of the network.
However, no such improvement has been seen till this day. Whether the Cancun upgrade scheduled for next year will make a difference remains to be seen, but the analysts are confident that it will.
Indeed Ethereum is a giant in the crypto industry and if the upgrade does improve efficiency, it is likely to kickstart an epic bull run for ETH.
