Ethereum’s Fusaka Upgrade: A Fleeting Resurgence or Sustainable Growth? JPMorgan Casts Doubt on Network’s Long-Term Viability
Following the successful implementation of the Fusaka upgrade, Ethereum’s on-chain activity witnessed a notable resurgence, marked by a concurrent climb in active addresses and transaction volumes. This revitalization naturally sparked enthusiasm within the crypto community. However, Wall Street titan JPMorgan Chase has tempered this optimism with a sobering assessment in its latest report. Analysts caution that fundamental obstacles, which have historically constrained Ethereum’s utility, remain unresolved, suggesting that the current upgrade-driven boom may prove unsustainable.
The Fusaka upgrade, deployed on December 3rd last year, significantly enhanced Ethereum’s data throughput. By increasing the maximum number of “Blobs” (data packets for Layer 2 data settlement) per block from 15 to 21, the upgrade immediately led to a reduction in mainnet transaction fees and subsequently spurred a surge in both active addresses and transaction volumes.
Despite these immediate positive indicators, JPMorgan’s analytical team, spearheaded by Nikolaos Panigirtzoglou, expressed reservations in their Wednesday report. “It remains uncertain whether this surge in network activity can be sustained,” the report stated. “Historical precedents indicate that previous Ethereum upgrades, for various reasons, have consistently failed to deliver lasting and effective boosts to network engagement.”
JPMorgan analysts delineated four critical factors underpinning their cautious outlook on Ethereum’s core fundamentals:
1. The Layer 2 “Vampire” Effect: Draining Mainnet Value
A significant portion of transaction activity is progressively migrating from the Ethereum mainnet to Layer 2 solutions such as Base, Arbitrum, and Optimism. Data from CryptoRank highlights this trend, revealing that Coinbase’s Base alone captures a staggering 60% to 70% of all Ethereum Layer 2 total revenue. This substantial shift effectively dilutes the mainnet’s capacity for value capture, a crucial metric for its economic health.
2. The Rise of Rival Blockchains: Solana’s Formidable Challenge
The competitive landscape from alternative public blockchains, particularly Solana, poses an undeniable threat. Analysts contend that Solana, with its inherently lower transaction costs and superior speed, has successfully carved out a “considerable” market share. This ongoing attrition sees users and developers increasingly drawn away from the Ethereum ecosystem, accelerating the decentralization of on-chain activity across various blockchain platforms.
3. Post-Speculation Hangover: A Shifting Demand Landscape
The speculative fervor that previously fueled massive spikes in Ethereum transaction volumes has largely subsided. The bull market of 2021-2022, characterized by frenzied activity in ICOs, NFTs, and meme coins, generated immense transaction demand. JPMorgan analysts observe that much of this speculative engagement has either dissipated or migrated to other blockchains, depriving Ethereum of a key historical driver of usage.
4. Liquidity Fragmentation: The App Chain Phenomenon
A growing fragmentation of capital and liquidity is impacting the Ethereum ecosystem. Analysts point to examples like Uniswap, a leading decentralized exchange, which has transitioned to its proprietary Layer 2, “Unichain.” Similarly, the derivatives platform dYdX has evolved into an independent chain. These high-profile applications are successfully retaining liquidity within their own ecosystems and directly capturing protocol revenues, rather than funneling them back to the Ethereum mainnet.
Collectively, these factors exert direct pressure on Ethereum’s fee revenue and its underlying token economic model. Analysts warn that diminished mainnet activity translates to fewer ETH being burned, leading to an increase in the circulating supply over time. This dynamic, they argue, creates a persistent downward pressure on the token’s price in the long run. The report concludes:
“While the Fusaka upgrade undeniably boosted Ethereum network activity, evidenced by increased transaction volumes and active addresses, we remain skeptical about the sustainability of this growth.”
“Historically, previous Ethereum upgrades have failed to deliver sustained and effective enhancements to network activity, and we believe the underlying factors contributing to this trend persist.”
In stark contrast to its cautious stance on Ethereum, JPMorgan maintains a more optimistic outlook on Bitcoin. Analysts recently reiterated a target price of up to $170,000 for Bitcoin within the next 6-12 months. This bullish forecast is attributed to factors such as the conclusion of the deleveraging cycle and an improvement in Bitcoin’s volatility profile relative to gold.
Looking at the broader cryptocurrency market, analysts project continued capital inflow through 2026. Following an impressive influx of nearly $130 billion in 2025, institutional investors are expected to remain the primary catalyst driving market growth throughout the current year.
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