JPMorgan says Ethereum likely to keep facing 'intense competition' from other networks

Ethereum is likely to continue facing "intense competition" from rival blockchains, according to JPMorgan analysts.

While the broader crypto market surged around the U.S. election, Ethereum's native cryptocurrency, ether, has lagged behind — not only underperforming bitcoin but also other altcoins, JPMorgan analysts led by managing director Nikolaos Panigirtzoglou wrote in a report on Wednesday. Ether's share of the total crypto market cap has now dropped to a four-year low, highlighting growing pressure from competitors, the analysts said.

Why is Ethereum underperforming?

The analysts point to two main reasons: rising competition from blockchains such as Solana and Layer 2 networks offering lower fees and greater scalability, and Ethereum's lack of a strong narrative compared to Bitcoin's positioning as a store of value.

Even after Ethereum's Dencun upgrade introduced blobs to reduce fees and improve scalability, activity has increasingly migrated from Ethereum's main network to Layer 2 networks, weakening the base chain, the analysts said.

Rising competition has also driven top decentralized applications to migrate to their own application-specific chains for better performance and lower costs. Uniswap, dYdX, and Hyperliquid have all made this move, with Uniswap's upcoming shift to Unichain being particularly significant, according to the analysts. As one of Ethereum's largest gas consumers, Uniswap's departure could reduce Ethereum's fee revenue and increase the risk of the network becoming inflationary, as fewer transactions would mean lower token burn, the analysts said.

Despite these challenges, Ethereum still leads in stablecoins, DeFi and tokenization areas, though its ability to maintain this dominance remains to be seen, according to the analysts.

To boost institutional adoption, Ethereum co-founder Vitalik Buterin and the Ethereum Foundation recently reportedly invested in Etherealize, a startup founded by former Wall Street trader Vivek Raman. Etherealize focuses on promoting Ethereum to financial firms, highlighting use cases such as tokenization while also developing products to simplify Ethereum's integration with banks.

While tokenization could drive Ethereum's institutional demand, "competition from other networks is likely to remain intense in the foreseeable future," the analysts concluded.