Heading into 2023, Ethereum (ETH -0.24%) looked unstoppable. Ethereum had just pulled off The Merge, which was often cited as one of the greatest technical accomplishments of 2022. As a result of The Merge, which made the entire network much less energy intensive, Ethereum appeared to be well positioned to continue its dominance in just about every meaningful niche of the blockchain world.
However, since August 2022 -- one month before The Merge -- Ethereum is only up 10%, at a time when other cryptos posted stellar triple-digit returns in 2023. From my perspective, Ethereum suddenly looks very vulnerable, which is why it's one crypto I'm avoiding in 2024. Let's take a closer look.
New strategic roadmap
Ethereum just released its new strategic roadmap for 2024, and I'm not impressed. Even Ethereum co-founder Vitalik Buterin acknowledges that there are only minor changes planned for the year ahead. The primary focus is on resolving some of the blockchain design problems that resulted from The Merge. Fair enough -- it's probably expecting too much from Ethereum to come up with a wildly new strategic roadmap after a breakthrough achievement like The Merge.
However, what concerns me is that some of the initial grand strategic goals of The Merge keep getting scaled back. For example, at one time Ethereum promised a total throughput speed of 1 million transactions per second. That has now been scaled back to 100,000. And according to Ethereum's own strategic roadmap, that goal probably won't be achievable in its current stage of development. Meanwhile, rival blockchain Solana (SOL -5.14%) says it already has the ability to handle 65,000 transactions per second.
On top of all that, Buterin seems to be backing away from what he refers to as the "financialization" of Ethereum's blockchain. Simply put, this term means the mainstreaming of Ethereum's blockchain for Wall Street institutions, ensuring that the blockchain's architecture makes sense for the modern financial world. If you're a long-term investor, that's exactly what you want to see, because it would be huge for Ethereum's future growth prospects.
However, Buterin now seems to be leaning into what he calls a "cypherpunk" (a mashup of "cyberpunk" and "cipher") approach to blockchain development to recapture some of the early mystique of crypto. Kudos to Buterin for staying true to his original vision for the blockchain. But as a cold-hearted investor, I find that somewhat worrisome. Are top Wall Street firms really going to partner with a bunch of cyberpunks?
Rise of new competitors
By itself, a less-than-compelling strategic roadmap would not be enough to get me off Ethereum. I mean, really, this is Ethereum we're talking about. This is a blockchain that has a strong track record dating back to 2015. Ethereum's Buterin has been featured on the cover of TIME magazine as "the prince of crypto," and it's hard not to think of him as one of the brightest minds of our generation.
Image source: Getty Images.
However, take a step back and consider the overall competitive landscape. One of the primary reasons for investing in Ethereum has always been the fact that it is a best-in-class blockchain, with an obvious dominant market share in key blockchain niches. But now there are several very credible competitors all nipping at the heels of Ethereum. Right now, three of the top 10 cryptocurrencies by market cap -- Solana, Avalanche (AVAX -3.35%), and Cardano (ADA -2.52%) -- are direct competitors to Ethereum.
Moreover, all three of these competitors now appear to be growing faster than Ethereum, especially Solana. At the end of 2022, for example, Solana started to eclipse Ethereum in terms of NFT trading volume and decentralized exchange (DEX) trading volume. And institutional investors really appear to be buying into the argument that Solana is a faster, more cost-efficient version of Ethereum. For example, Cathie Wood of Ark Invest recently appeared on CNBC, talking up the merits of Solana.
How can Ethereum get its mojo back?
Right now, I'm not adding to my Ethereum position until it moves out of The Merge stage of development and into what the crypto's leaders have dubbed "The Surge" stage of development. To me, the remainder of The Merge stage is filled with a bunch of wonky technical improvements that aren't truly disruptive in nature. In contrast, The Surge is when Ethereum is supposed to hit that 100,000 transactions per second threshold. That's exciting, because even a world-class payment network like Visa, Inc. (V -0.23%) can't deliver that type of throughput.
At the same time, I'll be watching to see how well Ethereum preserves its market-leading position in key blockchain niches. If Ethereum can show that it is fending off rival blockchains such as Solana, then I will be much more inclined to restore my bullish outlook for Ethereum.
