In the ever-evolving landscape of cryptocurrencies, JPMorgan analysts are placing their bets on Ethereum, anticipating it to outperform Bitcoin and its counterparts in the upcoming year, 2024. While the bank maintains an overall “cautious” stance towards the crypto markets, its optimism for Ethereum is grounded in the upcoming EIP-4844 upgrade, also known as Protodanksharding.
JPMorgan’s analysts, led by Nikolaos Panigirtzoglou, highlight the significance of the EIP-4844 upgrade, set to unfold in the first half of 2024. This upgrade, a crucial step towards the full implementation of Danksharding, is expected to enhance Ethereum’s network activity substantially. The analysts firmly believe that this upgrade will serve as a catalyst, propelling Ethereum to reclaim its market share within the crypto ecosystem.
Danksharding, as a more efficient form of sharding for Ethereum, deviates from the initially planned sharding technique. Unlike the complex process of dividing Ethereum into multiple shard chains, Danksharding introduces data blobs. These temporary data packets, attached to blocks, possess the ability to hold more data than blocks but aren’t permanently stored or accessed by the Ethereum virtual machine.
The upgrade proves particularly advantageous for Layer 2 networks such as Arbitrum and Optimism. Providing additional temporary data space significantly augments network throughput and reduces transaction fees for Layer 2 networks on Ethereum. In essence, data blobs enhance the efficiency of Layer 2 networks without altering the Ethereum block size.
JPMorgan analysts dismiss the bullish outlook for Bitcoin in 2024, citing that factors such as the potential approval of spot ETFs and the upcoming halving are already priced in. Drawing parallels with the 2020 halving, where the ratio of Bitcoin’s market price to production cost decreased, the analysts predict a similar move after the 2024 halving. They conclude that, given the current ratio, the 2024 Bitcoin halving event is largely reflected in the price.
Despite the strides made by decentralized finance (DeFi), JPMorgan analysts express disappointment in its failure to infiltrate the traditional financial system. The transition from a crypto-native ecosystem to real-world applications hinges on DeFi‘s ability to integrate with traditional finance. However, major applications, such as overnight repo transactions via smart contracts, predominantly occur outside public blockchains.
The analysts identify tokenization as progressing “rather slowly,” remaining at a “largely experimental stage.” They attribute this sluggish progress to fragmentation, lack of cooperation, and interoperability issues between platforms. Delays in the introduction of central bank digital currencies by the Fed and the ECB, coupled with a lack of regulatory clarity, further impede the development of tokenization within the crypto space.
Turning attention to the funding landscape, JPMorgan acknowledges a tentative improvement in venture capital funding in the crypto space during the fourth quarter of the current year. Despite this uptick, analysts remain cautiously optimistic, characterizing the improvement as “rather tentative.” They posit that if this positive trend continues into the first quarter of 2024, it could signify the end of the crypto winter.