In mid-April, Ethereum (ETH -3.06%) completed its highly anticipated Shapella upgrade. This marked the first major upgrade to the Ethereum blockchain since The Merge took place last September. Ethereum is now up almost 60% for the year and recently broke through the $2,000 mark before retreating a bit.

But Ethereum is still well below its 52-week high of $3,026, so there's work to be done. The next major catalyst for Ethereum could be another planned tech upgrade, tentatively scheduled for early 2024. So what are the chances of Ethereum breaking through the $3,000 level before that happens?

The importance of the next Ethereum upgrade

Ethereum's transformation from a proof-of-work to a proof-of-stake blockchain due to The Merge last year was a titanic technological accomplishment. Consequently, many investors anticipated that this transformation would greatly boost Ethereum's overall performance. So far, reviews have been mixed.

That's why I think the next upgrade cycle for Ethereum is so important. The last upgrade primarily focused on one aspect of Ethereum: crypto staking, whereas this next upgrade will focus on scalability and performance.

Investor analyzing Ethereum with tablet and spreadsheet.

Image source: Getty Images.

The two performance metrics investors care most about are transaction processing speeds and transaction fees. Obviously, transaction processing speeds should be as high as possible, and transaction fees should be as low as feasible. Ethereum has always trailed blockchain rivals in these two metrics, and so this is one area where The Merge was really supposed to make a difference.

Remember -- Ethereum once promised speeds of as many as 100,000 transactions per second, and we are currently nowhere close to this number on the main Ethereum blockchain. Even more worrisome, Ethereum co-founder Vitalik Buterin recently warned about the potential for $500 transaction fees in the near future if Ethereum's scalability issues are not resolved.

The cost of doing business on Ethereum

Given blockchain technology's openness and transparency, tracking the cost of doing business on the Ethereum blockchain is very easy. The number to focus on here is the "gas fee" (i.e., transaction fee) for using Ethereum. This is the cost paid to add a new transaction to the Ethereum blockchain. 

Theoretically, Ethereum gas fees should decline over time due to The Merge. But is that really the case? Recently, there has been a 10-month spike in Ethereum gas prices, and the average gas price for Ethereum has been on the increase for months now.  The concern is that in a bull market rally, demand for Ethereum could spike and lead to even higher gas prices. If you look at the last bull market rally, for example, there were some incredible spikes in gas prices when Ethereum became almost unusable for average users.

Think about the way the cost of gas works in real life. The greater the demand for gas, the higher the price tends to go. This is basic supply and demand. During the peak summer driving season, for instance, gas prices tend to rise. Well, the same thing happens in the blockchain and crypto world. The greater the demand for Ethereum, the higher its gas prices tend to go. And in a crypto bull market rally -- the equivalent of peak summer driving season -- blockchain gas fees can skyrocket.

That's why scalability is such a priority for Ethereum. Gas fees must be under control before the next big crypto rally, or people could decide to abandon Ethereum for cheaper blockchains. Sky-high Ethereum gas fees are much like experiencing sticker shock at the pump. This sort of sticker shock has been a problem in the past with Ethereum when non-fungible token (NFT) gas fees were sometimes higher than the cost of the underlying NFT.

Ethereum at $3,000?

If Ethereum is going to skyrocket to $3,000 -- a gain of more than 60% increase from today's prices -- investors will want to see real performance upgrades in the works. Right now, Ethereum depends heavily on Layer 2 scaling solutions to work effectively, and I think that has blinded investors to the underlying performance issues with the core Ethereum blockchain.

As for me, I'm watching several key factors. Gas fees and transaction processing speeds are on the list because they affect the usability of the blockchain so heavily. And I'm also watching updates to Ethereum's official roadmap. If the next tech upgrade gets pushed back to mid- or late-2024, I'm going to be concerned.

That said, I'm still bullish on Ethereum long term. I have confidence in the Ethereum roadmap, and I'm especially pleased that Vitalik Buterin has made performance and scalability such major priorities. This is the key to Ethereum remaining the world's premier Layer 1 blockchain.