JPMorgan Research Report: Why Do ETH and Altcoins Continue to Underperform BTC? Network Activity Is the Key

As of May 22, 2026, according to Gate market data, Bitcoin's price remains steady above $77,000 USD, while ETH is quoted at $2,150 USD, and the ETH/BTC exchange rate continues to hover around 0.035 at low levels. A recent research report from JPMorgan further reinforces a mainstream market consensus: unless there is explosive growth in network activity, ETH and broader altcoins are likely to continue underperforming BTC in the foreseeable future. This is not a short-term emotional fluctuation but a structural shift driven by capital flows, technological architecture, and narrative logic.

Why is Bitcoin's dominance continuously increasing?

Bitcoin dominance (BTC Dominance) has risen back above 60% in Q2 2026. Its core driving force is not merely risk aversion but a clear "digital gold" narrative and selective institutional capital re-entry. Data comparisons in JPMorgan's report show that since the 2024 peak, the outflow recovery rate from BTC spot ETFs is about two-thirds, meaning most of the institutional funds that flowed out have already re-entered; meanwhile, ETH spot ETF outflows have only recovered about one-third. This indicates that after market volatility, traditional capital's confidence in BTC's allocation has rebounded much faster than ETH and other cryptocurrencies. When uncertainty exists, Bitcoin, as the most liquid and oldest asset, becomes the preferred safe haven for large funds.

How does Ethereum's Layer 2 strategy weaken its mainnet value capture?

Ethereum faces not technological backwardness but a profound "technological upgrade paradox." The explosive growth of Layer 2 networks has successfully lowered user transaction costs and improved network scalability, but at the same time, it significantly diminishes Ethereum's mainnet gas consumption and fee capture ability. Since the Dencun upgrade introduced Blob data, mainnet fee revenue has dropped by approximately 60% to 80%. A large volume of transaction activity has migrated to L2 networks like Arbitrum and Optimism, causing the demand for ETH as the mainnet "fuel" to slow dramatically. JPMorgan's analysis indicates that if this trend continues, ETH's deflationary expectations could reverse entirely, even facing persistent inflationary pressures, thereby weakening its appeal as a store of value for long-term holders.

What market preferences are revealed by the divergence in institutional fund flows?

Comparing ETF fund flows with on-chain whale activity reveals clear tiered preferences among capital. Institutional funds favor assets with "high liquidity, low regulatory risk, and mature narratives," with Bitcoin currently fully meeting these three criteria. ETH is limited by its complex staking status and ongoing SEC regulatory discussions (though specific regulators are not mentioned, market consensus exists around uncertainty). For broader altcoins, except for a few with strong revenue models like certain DeFi protocols, most are in a "liquidity vacuum." Take Solana as an example: its total value locked (TVL) has plummeted from a peak of about $13.1 billion USD to roughly $5.5 billion USD, reflecting a waterfall-like decline in TVL that directly indicates the dual loss of speculative capital and ecosystem applications.

What challenges does the altcoin market face without explosive growth?

The core argument in JPMorgan's report is that "explosive growth in network activity" is a prerequisite for reversing the downturn of ETH and altcoins. Here, network activity does not refer to a simple increase in address count but to core metrics such as on-chain transaction fees, active addresses, stablecoin issuance, and DeFi lending scale experiencing a 3-5x surge. The main challenge facing the altcoin market is "narrative fatigue"—the previous cycle's grand narratives like Play-to-Earn, metaverse, and Layer 1 blockchain wars failed to translate into sustained, high-frequency on-chain demand. Without actual applications driving fee burning, most altcoins can only rely on liquidity speculation, which becomes unsustainable in an environment of high macro interest rates.

What strict conditions are needed for a market reversal?

Logical deduction suggests that reversing the current "BTC inflow, altcoin outflow" pattern requires meeting three strict conditions simultaneously: first, substantial easing signals in macro liquidity, such as the Federal Reserve explicitly entering a rate-cutting cycle, prompting a broad risk appetite rebound; second, the emergence of a native crypto narrative capable of supporting large-scale new capital inflows—such as genuinely decentralized physical infrastructure networks or mass-market consumer blockchain applications—rather than simple mappings of traditional finance; third, ETH must resolve its Layer 2 ecosystem's "value backflow" issue, for example, through account abstraction or shared sequencer mechanisms, ensuring that a portion of Layer 2 profits flows back to mainnet validators and ETH stakers. Missing any one of these conditions would make the rebound short-lived and fragile.

How will the market cycle evolve in 2026?

Looking ahead to the second half of 2026, the market may enter a new phase of "increasing divergence." Bitcoin will increasingly resemble a macro asset, with volatility likely further decreasing, attracting pension funds, insurance companies, and long-term allocators. ETH and leading altcoins will enter a "real application competition," where only protocols capable of generating sustainable revenue (such as transaction fees, lending interest, MEV value) will command valuation premiums. This suggests that the broad, all-rising "altcoin season" concept may be fading, replaced by a more professional and brutal "survival of the fittest" market. For investors, core asset evaluation metrics will shift from "community hype" to "fees generated per unit of TVL" and the health of token buyback and burn mechanisms.

Summary

Overall, JPMorgan's research report does not deny ETH and altcoins but objectively describes the evolution of market structure. Currently, Bitcoin's undisputed "digital gold" positioning and strong institutional capital inflows provide a logical basis for its continued dominance. ETH faces a value capture paradox caused by technological upgrades, while broader altcoins are struggling with liquidity issues due to the lack of explosive on-chain activity. The 2026 crypto market will no longer be a tidal wave of broad-based rallies but a structural differentiation centered on real demand, fee income, and capital efficiency.

FAQ

Q1: What is the core point of JPMorgan's report?

A: The core point is that unless network activity (such as transaction fees, active addresses, DeFi scale) of ETH and altcoins explodes, they will continue to underperform Bitcoin in the foreseeable future.

Q2: Why might Layer 2 development be unfavorable for ETH price?

A: Because a large volume of transactions migrate from the mainnet to lower-cost L2 networks, significantly reducing ETH's gas consumption and fee-based deflationary mechanism, weakening its value capture.

Q3: What are the specific fund recovery rates for BTC and ETH ETFs?

A: According to the report, recent data shows BTC spot ETF has recovered about two-thirds of the outflows, while ETH spot ETF has only recovered about one-third, reflecting a clear capital preference difference.

Q4: Will there be another comprehensive "altcoin season" like in the past in 2026?

A: The likelihood is decreasing. The market is more likely to enter a phase of "differentiated survival of the fittest," where only top-tier altcoins with real revenue and strong network effects can sustain upward momentum.

Q5: What indicators should be focused on for Ethereum price analysis?

A: Key indicators include: daily average Gas fees on the mainnet, transaction volume share on Layer 2, ETH's net issuance rate (inflation/deflation), and the trend of ETH/BTC exchange rate.