JPMorgan Letter: Ethereum Upgrade Has Brought Success, But Delays Will Be Noticed

In a unique letter sent to clients this Wednesday, JPMorgan stated that the latest Ethereum upgrade has yielded very positive results in a short period. However, the major Wall Street bank expresses deep skepticism about whether this positive trend will continue. Their analysis contains important insights that Ethereum investors and users should pay attention to.

Fusaka: The Upgrade That Delivered Immediate Gains

The December upgrade to Fusaka brought significant changes to the Ethereum network. By adding capacity for “blob” data in each block, the system’s ability to process data was expanded. The direct result is unclear: transaction fees decreased, while the number of transactions and active addresses on the network increased.

This enhancement was particularly helpful for layer-2 blockchains, which rely on the main Ethereum chain for data availability. With lower transaction costs, layer-2 networks like Base, Arbitrum, and Optimism experienced higher activity and usage.

JPMorgan’s Skepticism: Challenges to Long-Term Sustainability

Despite positive data, analysts led by Nikolaos Panigirtzoglou from JPMorgan doubt the long-term impact of this upgrade. According to their study, previous Ethereum upgrades have shown a discouraging pattern: network activity successes are often temporary and do not lead to sustained growth.

The letter emphasizes that history shows a recurring cycle where upgrades cause rapid increases followed by quick declines. This pattern warns investors not to expect the current rally to last indefinitely.

The Pressure from Layer-2 and Crypto Competition

The real challenge for Ethereum does not only come from technical hurdles but also from external competition. Layer-2 networks themselves contribute to shifting value away from Ethereum. Blockchains like Base, Arbitrum, and Optimism are capturing larger shares of activity and revenue.

Additionally, faster and cheaper blockchains like Solana continue to attract developers and users. This competition has triggered a “brain drain” in the Ethereum ecosystem, with projects like Uniswap and dYdX actively shifting liquidity and revenue to other chains.

The result is alarming for Ethereum holders: lower fee burn, increased ETH supply, and a decrease in total value locked (TVL) on the main network. With the current price at $2.95K and a 24-hour decline of 2.53%, the market shows a cautious sentiment.

The Fear of Speculative Cycles: NFT and Memecoin Booms

JPMorgan also pointed out the lack of speculative momentum that helped in the past year. The boom of non-fungible tokens (NFTs), memecoins, and initial coin offerings (ICOs) were significant drivers of network activity during that period. The disappearance of these speculative cycles leaves Ethereum without natural tailwinds for growth.

The Future: MegaETH and Other Expectations

Despite all the skepticism, the ecosystem does not stop. MegaETH, a high-performance layer-2 network under study, plans to launch its public mainnet on February 9. This project promises very low latency and massive throughput, potentially offering new hope for Ethereum scalability.

Competition in the layer-2 space and ongoing innovation by other blockchains mean Ethereum must continue to adapt and improve. JPMorgan’s insights serve as a wake-up call: the upgrade is good, but the work is not finished.

Ethereum’s future depends on its ability to maintain ecosystem engagement amid high competition and the waning of the speculative momentum that once drove rapid adoption.