ETH share in the crypto market capitalization fell to a four-year low

What’s new? Analysts at JPMorgan bank believe that the native token of the Ethereum (ETH) blockchain will continue to face pressure in the face of stiff competition. While the broader crypto market has grown on the back of the US election, ETH is lagging behind both bitcoin and altcoins in terms of returns. Indeed, ETH’s share of the total crypto market capitalization has fallen to a four-year low of 10,15%.

Material by The Block

What else is known? One of the reasons for the lag, analysts in their new report called the growing competition from the Layer 1 (L1) blockchain Solana and Layer 2 (L2) networks based on Ethereum itself, such as Arbitrum, Base, and OP Mainnet, which offer lower fees and better scalability.

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Analysts have also noted the problems with ETH’s positioning, citing bitcoin as a counterbalance to it, which is seen as a savings vehicle and “digital gold” not only in the crypto community but also among members of the traditional finance sector.

Even after Ethereum developers upgraded Dencun in March 2024 to lower fees and increase scalability, activity has increasingly shifted from Ethereum to L2 networks, weakening the underlying blockchain, JPMorgan noted.

Growing competition has also forced leading decentralized applications to move to their own blockchains to improve performance and reduce costs. dYdX and Hyperliquid exchanges have done so, and the upcoming move by leading decentralized platform Uniswap to its own Unichain blockchain is particularly significant, analysts say.

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Uniswap is currently one of Ethereum’s biggest consumers, so its departure could reduce fee revenue and increase the risk of ETH inflation, as fewer transactions would mean a drop in the amount of tokens burned.

This mechanism was introduced to Ethereum along with The Merge upgrade in September 2022. At that time, the blockchain itself switched from the Proof of Work (PoW) consensus algorithm to Proof of Stake (PoS), and a portion of the ETH paid as fees began to be burned to curb supply and encourage exchange rate hikes.

Earlier this week, ETH was once again inflationary, with supply reaching levels seen before The Merge upgrade.

ETH ranks second after bitcoin in the overall ranking of cryptocurrencies by market capitalization at $338,9 billion and is trading at $2811, having added 0,5% overnight. At the same time, the asset has lost 16% since the beginning of the year.

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Despite these challenges, Ethereum is still leading the way in areas such as stablecoins, DeFi protocols, and real-world asset (RWA) tokenization, although its ability to maintain this dominance is in question, according to analysts.

To spur institutional adoption, Ethereum co-founder Vitalik Buterin and the Ethereum Foundation invested in Etherealize, a startup founded by former Wall Street trader Vivek Raman.

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Etherealize focuses on promoting Ethereum to financial companies, highlighting use cases such as tokenization, and developing products to facilitate Ethereum’s integration with banks.

While tokenization may drive institutional demand for Ethereum, “competition from other networks is likely to remain intense in the foreseeable future,” the analysts concluded.