According to a new report by JPMorgan Chase (JPM), Ethereum’s (ETH) upgrade to a more energy efficient proof-of-stake operating model has failed to boost the cryptocurrency’s price or network activity.
Often referred to as “the Merge,” the switch to a more environmentally friendly process for minting new tokens has not delivered the promised benefits of increased activity or price action for the world's second largest cryptocurrency.
“While the shift from proof-of-work (PoW) to proof-of-stake (PoS) that resulted from the Merge upgrade meant that the energy consumption for the Ethereum network collapsed by more than 99%, the Ether supply is shrinking and staking rose sharply, the increase in network activity has been rather disappointing,” wrote JPMorgan analysts in the research report.
The bank notes that Ethereum's daily transaction count has fallen 12% since the upgrade was completed, and daily active addresses have dropped by nearly 20%.
At the same time, Ethereum’s price has risen 33% so far this year, which is about half the gain seen in Bitcoin (BTC), the largest cryptocurrency by market capitalization.
At its current price of just under $1,600 U.S., Ethereum’s price is 65% below the all-time high it reached in November 2021.
Many crypto observers had predicted that Ethereum’s network activity and price would skyrocket after it switched to a less energy intensive proof-of-stake operating model.
Some analysts forecast that Ethereum would overtake Bitcoin as the largest digital asset.
JPMorgan suggests that the decline in Ethereum’s network activity and price is due to “bearish forces” that include the $8 billion U.S. collapse of the FTX exchange last fall, an ongoing U.S. regulatory crackdown, and a shrinking number of stablecoins.
The switch to the proof-of-stake model through the Merge took place in September 2022. Another change to Ethereum known as the “Shanghai upgrade” was completed in April of this year and enabled the withdrawal of staked Ethereum.
Both events were hailed as major milestones in the history of cryptocurrencies.
