JPMorgan predicts Ethereum’s dominance over Bitcoin in 2024

JPMorgan has predicted that Ethereum will surpass Bitcoin and other cryptocurrencies in performance in 2024, although it also said that it would maintain a generally cautious stance regarding the overall cryptocurrency markets in the upcoming year.

The anticipated U.S. Securities and Exchange Commission (SEC) announcement regarding the approval of spot Bitcoin exchange-traded funds (ETFs) is not expected to lead to significant price increases, with JPMorgan analysts, led by Nikolaos Panigirtzoglou, mentioning a “high chance of buy-the-rumor/sell-the-fact effect once the SEC approves spot bitcoin ETFs early next year” in their report.

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“We believe that next year Ethereum will re-assert itself and recapture market share within the crypto ecosystem,” said the analysts 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.”

According to the analysts, this upgrade is especially useful for networks like Arbitrum and Optimism. It adds extra temporary space for data, helping these networks work faster and cost less. In simple terms, data blobs make Layer 2 networks better without changing how big Ethereum blocks are.

Protodanksharding is a first step toward making Danksharding work better for Ethereum. Unlike the original sharding, Danksharding avoids the complicated process of splitting Ethereum into lots of pieces. Instead, it brings in data blobs like temporary data packets attached to blocks. They can hold more data than blocks but aren’t kept or used by the Ethereum virtual machine forever.

Ethereum vs Bitcoin daily settlement value. Source: Messari

While there is some positive momentum in the crypto space, the bank observes a resurgence in venture capital (VC) funding during the fourth quarter of 2023, although it seems somewhat uncertain. Despite some developments in decentralized finance (DeFi) activity, the most significant letdown remains the DeFi sector’s inability to make inroads into the traditional financial system. According to the report, this transition is crucial for the crypto ecosystem to shift from being crypto-native to having real-world applications.

“The biggest applications of blockchain to traditional finance, i.e. overnight repo transactions via smart contracts in blockchain platforms hosted by companies such as Broadridge and JPMorgan, take place outside public blockchains,” said the analysts.

Furthermore, the process of tokenization is progressing at a relatively slow pace, existing predominantly in an experimental phase. According to the statements, this sluggish evolution is impeded by challenges such as fragmentation, insufficient collaboration and interoperability among platforms, delays in implementing central bank digital currencies by the Federal Reserve and the European Central Bank, and a lack of regulatory frameworks.

Bitcoin price already priced in 2024 halving

According to the analysts, factors expected to positively impact Bitcoin in the coming year, such as the potential approval of spot ETFs and the upcoming halving, are already factored into the current prices.

The analysts noted that following the 2020 halving, there was a decrease in the ratio of Bitcoin’s market price to production cost. They suggest that a comparable trend after the 2024 halving would be reasonable.

“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,” said the analysts.

The analysts argued that considering the existing Bitcoin hash rate and mining difficulty, the cost of production for miners is expected to increase from approximately the present $22,000 to about $44,000 after the halving.

The current Bitcoin price of around $42,000 aligns with a five percent decline in the hash rate after the halving, a figure deemed to be underestimated. The team anticipates a more substantial 20 percent reduction in the hash rate, leading to miners with higher operational costs exiting the market.

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