JPMorgan Sees a Major Problem in Ethereum’s Model
JPMorgan sees a structural problem in the way Ethereum has evolved over recent years.
Summary:
- JPMorgan does not expect Ethereum to catch up with Bitcoin anytime soon.
- Institutional capital continues to flow toward BTC.
- ETH upgrades are weakening Ethereum’s deflationary model.
According to the bank, the situation is unlikely to change without a major increase in network activity, DeFi usage, and real-world Ethereum applications. JPMorgan believes institutional capital behavior is already beginning to clearly reflect this trend.
What the ETF Data Shows
Data from SoSoValue indeed shows that institutional capital continues to return to Bitcoin much faster than to Ethereum.
After the outflows in October, BTC ETFs recovered a larger share of withdrawn funds compared to ETH ETFs. This means institutional investors returned capital to Bitcoin approximately twice as fast as they did to Ethereum.
According to JPMorgan, this shows that institutions are increasingly viewing Bitcoin and Ethereum as two different types of assets.
Why the Upgrades Are Starting to Create Problems
The bank believes part of the issue comes from Ethereum’s own model and the way the network has developed over the past few years.
After EIP-1559, the blockchain began burning part of the transaction fees, creating the thesis that ETH could gradually become a deflationary asset with limited supply.
The problem is that recent upgrades have made the network significantly cheaper to use.
Lower fees are good for users and make Ethereum more competitive. But when fees fall, the amount of ETH burned through transactions also decreases. As a result, net supply begins growing faster again.
According to JPMorgan, this is where the core problem in Ethereum’s model emerges. The network wins as a technology, but that does not always benefit the ETH token itself.
The cheaper and more efficient the blockchain becomes to use, the weaker the mechanism that limits ETH supply becomes. In other words, the improvements that help the network simultaneously weaken one of the main investment theses behind ETH.
According to the bank, this is not a temporary issue but a structural conflict built into Ethereum’s model itself.
Why JPMorgan Is Watching Glamsterdam and Hegota
The report warns that the upcoming Glamsterdam and Hegota upgrades could fall into the same trap.
Previous upgrades reduced costs for layer-2 solutions and fees on the main network, but they did not lead to a large enough increase in on-chain activity to offset the weaker ETH burn rate.
READ MORE: Ethereum Holds Over 65% of the Euro Stablecoin Market
Ethereum could maintain deflationary pressure even with lower fees if network activity grows fast enough. More transactions at lower fees could still lead to a greater total amount of ETH being burned.
However, according to JPMorgan, this has not happened so far. The upgrades reduced fees, but network activity did not increase enough to keep ETH burning at the required levels.
That is why the bank is questioning whether Glamsterdam and Hegota will be able to generate enough new activity to reverse this trend.
The Big Contradiction Around JPMorgan and Ethereum
The most interesting part of the analysis comes from somewhere else.
In the same week JPMorgan published a negative analysis on ETH, the bank used Ethereum infrastructure for a transaction through Ondo Finance.
According to JPMorgan, this shows that Ethereum as a technology and ETH as an investment are already starting to move in different directions.
A bank can actively use the network for settlement of tokenized assets without necessarily wanting to hold large amounts of ETH as an investment.
In practice, institutions can use the blockchain almost like ordinary financial infrastructure. They pay fees to use the network, but that does not necessarily mean they want significant exposure to the token itself on their balance sheets.
According to JPMorgan, this is the part much of the market continues to underestimate.
Many investors assume that broader institutional adoption of Ethereum should automatically increase the price of ETH.
JPMorgan, however, questions exactly that relationship.
If institutions access the network through intermediary infrastructure and use it mainly as a technology layer, then Ethereum’s growth and ETH’s price could increasingly move independently from one another.
Why Regulations Could Change the Situation
JPMorgan believes the next major test of this thesis could come from the Clarity Act, which passed the Senate Banking Committee with bipartisan support.
If ETH receives a clearer regulatory classification, the divide between the network as infrastructure and the token as an investment could begin to narrow.
But if that divide remains, JPMorgan expects institutional capital to continue flowing more strongly toward Bitcoin regardless of how successfully Ethereum develops technologically.
The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.
Alexander Stefanov
Reporter at CoinsPress
Alex is Editor-in-Chief of Coinspress and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets - crypto first, then everything else. It started in 2016 with Bitcoin. Like most people at the time, he didn't fully understand it - so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can't properly understand one without the other. What drives him is straightforward: he wants to know why something is happening, not just that it's happening. Most market coverage stops at the headline - price up, price down, here's a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn? He holds a degree in Tourism from New Bulgarian University - not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That's probably why he hasn't stopped.
