JPMorgan says ether and altcoins could keep underperforming bitcoin without stronger activity

Ethereum's native ether token and other altcoins have continued to underperform bitcoin despite the broader crypto market recovery following the Iran conflict, JPMorgan analysts said.

"And this underperformance trend that started in 2023 is unlikely to change unless we see meaningful improvements in network activity, DeFi and real world applications," the JPMorgan analysts led by managing director Nikolaos Panigirtzoglou said in a report.

Bitcoin (BTC) has recovered more strongly than ether (ETH) across both spot exchange-traded fund flows and institutional futures positioning since the market selloff tied to the conflict, the analysts noted. They said spot bitcoin ETFs have recovered roughly two-thirds of their previous outflows, while spot ether ETFs have recovered only about one-third.

The analysts also pointed to CME futures positioning as a sign that institutional investors have rebuilt bitcoin exposure more aggressively than ether exposure. Bitcoin futures positioning has recovered almost fully from its earlier drawdown, while ether futures positioning remains below previous levels, they said.

Meanwhile, momentum-focused traders such as commodity trading advisors and crypto quant funds still appear to be "slightly underweight" both bitcoin and ether following last October's deleveraging event, the analysts said.

Could upcoming Ethereum upgrades help?

The analysts also questioned whether upcoming Ethereum upgrades expected this year would be enough to improve ether's relative performance against bitcoin.

They said Ethereum upgrades over the past three years failed to meaningfully boost network activity. Instead, those upgrades mainly reduced Layer 2 transaction costs, which lowered fees generated on the Ethereum network and weakened the token burn mechanism, resulting in higher net supply growth and weaker price support for ether.

The upcoming Glamsterdam and Hegota upgrades are expected to improve Ethereum’s scalability by increasing network throughput and lowering transaction costs on the base layer. But the analysts said the key question is whether those upgrades can generate enough new demand and network activity.

"It remains to be seen whether these coming improvements can succeed in boosting network activity or at least drive enough demand growth to offset the continued reduction in Ethereum's burn mechanism and resulting net supply increase," the analysts said.

As for altcoins, the analysts said they have struggled against bitcoin since 2023 because of weaker liquidity conditions, lower market depth and breadth, limited growth in decentralized finance activity, as well as repeated hacks and security breaches across the crypto industry.

"All these factors have eroded confidence in the broader altcoin ecosystem and discouraged the deployment of fresh capital," the analysts said.