The upcoming Dencun upgrade aims to further scale Ethereum and its Layer 2 solutions through the implementation of a key improvement proposal known as EIP-4844.
ETH/BTC Exchange Rate and On-Chain Data Comparison
Since October, and up to December 15, Bitcoin has seen a price increase of 57.5%, while Ethereum has gained 48.34%. Although the difference is not dramatic, Ethereum has been underperforming relative to Bitcoin for nearly a year.
Bitcoin’s strong performance is mainly driven by expectations around spot BTC ETF approvals, the approaching halving cycle, and the recent growth of the Bitcoin ecosystem. While Ethereum lacks similar short-term catalysts, its on-chain metrics still reflect positive signals.
Looking at sell-side pressure, Bitcoin balances on exchanges have been declining consistently since June. However, there was a noticeable rebound between December 5 and 12. Following this spike, Bitcoin’s price dropped to around $41,000.
In contrast, Ethereum exchange balances have been less volatile. Since February 2023, the amount of ETH on exchanges has been on a steady decline. A minor rebound occurred between December 11 and 13, coinciding with a market dip. This suggests some investors moved ETH to exchanges to realize gains after the brief downturn.
According to data from Santiment, social media engagement trends are similar for both assets, though Bitcoin dominates in overall visibility. The MVRV ratio—which compares market value to realized value and often indicates profit-taking pressure—also shows parallel trends but differs in magnitude. As of December 15, Bitcoin’s MVRV stood at 41.17%, while Ethereum’s was 26.45%. Both are at six-month highs.
Despite lagging behind Bitcoin in recent gains, Ethereum is seeing a shift in institutional interest, a trend that became more pronounced after November 2023.
Data from CryptoQuant indicates that while Ethereum was trading between $1,800 and $1,900, institutional ETH holdings saw a notable rebound. This surge suggests growing confidence among institutional investors in Ethereum’s long-term value and growth prospects. Factors behind this trend include ETH’s price stability, potential spot ETF approvals, and ongoing improvements to Ethereum’s core technology.
JP Morgan’s 2024 financial outlook report also expressed a positive stance on Ethereum relative to Bitcoin. The report states that despite Bitcoin’s approaching halving, Ethereum is expected to outperform in the coming year. JP Morgan analysts highlighted the upcoming EIP-4844 upgrade (Proto-Danksharding) as a key catalyst that will improve network efficiency and scalability.
On the other hand, Bitcoin’s halving may already be priced in, and the event could increase production costs and reduce hash rate by an estimated 20%. This might raise operational expenses for miners and push less efficient operators out of the market.
Key Steps Before the Ethereum Dencun Upgrade
According to core developer consensus call reports, developers initiated critical pre-upgrade steps near the end of 2023. Over the following one to two weeks, a Goerli shadow fork was scheduled to test the Cancun/Deneb upgrade across all client implementations.
Testing for the Cancun/Deneb upgrade on Devnet 12 is currently underway. All execution layer (EL) and consensus layer (CL) client combinations—including Prysm—are active on the testnet. MEV-Boost software has been activated for most client pairs, with the exception of those involving Prysm.
The Dencun upgrade will introduce changes to both of Ethereum’s mainnet layers: the execution layer and consensus layer. The execution layer upgrade is referred to as Cancun, and the consensus layer upgrade as Deneb—together forming the name Dencun.
This upgrade will implement EIP-4844, a major improvement designed to scale Ethereum and enhance the efficiency of Layer 2 networks. Dencun represents a key milestone in Ethereum’s development roadmap and is expected to make L2 transaction fees significantly more competitive.
Returning L2 functionality to L1 with Encapsulated zkEVM
Layer 2 networks improve Ethereum’s scalability by processing transactions off-chain before bundling and submitting them to the mainnet. This approach was emphasized by Vitalik Buterin in 2020, during a period of soaring network fees.
Recently, Buterin suggested that with improvements in “light client” technology, the next evolution for Ethereum may involve returning some L2 functionality back to the mainnet through encapsulated zkEVM. This proposal marks a shift from his earlier vision of offloading computation from Layer 1 to Layer 2.
In a recent blog post, Butrein highlighted the growing importance of light clients—streamlined nodes that request specific data on demand rather than storing a full copy of the blockchain. These clients typically handle block headers and only download block content when necessary.
Buterin believes that as light clients become more capable, they could eventually validate Layer 1 transactions with completeness comparable to L2 solutions. In effect, the Ethereum network would feature a built-in zkEVM.
Zero-knowledge proofs are cryptographic protocols that allow one party to prove to another that a transaction is valid without revealing underlying details. The Ethereum Virtual Machine (EVM) is the runtime environment that executes smart contracts.
Several major L2 networks—including Polygon, Scroll, and Matter Labs—currently use zero-knowledge proofs and are significant players in the DeFi ecosystem. Buterin’s proposal for encapsulating zkEVM could reduce the distinct role of these platforms. So how would L2 functionality evolve if zkEVM becomes part of Ethereum’s core protocol?
According to Buterin, L2 projects would still be responsible for critical functions such as fast pre-confirmations, MEV mitigation strategies, and EVM extensions. Encapsulating zkEVM would also improve the experience for developers and users. He stated, “L2 teams have done tremendous work attracting users and projects into their ecosystems. By capturing MEV and congestion fees, L2s can continue to receive compensation. This relationship will persist.”
Major Ethereum Developments To Watch in 2024
The Dencun upgrade is scheduled for deployment in March or April 2024. Through EIP-4844, gas costs on Ethereum L2s will be substantially reduced, and scalability will be greatly improved.
Activity on Ethereum Layer 2 networks continues to grow and has recently reached all-time highs. According to L2Beat, the total value locked (TVL) across L2 ecosystems has reached $16 billion.
Most current L2s are EVM-compatible, such as Arbitrum, Optimism, and Metis. In addition, non-EVM L2s like Eclipse and Flyent are launching, which may attract new types of applications and developers. Crypto gaming is expected to thrive primarily on L2 ecosystems, and ongoing improvements in wallet user experience should help onboard new users into the Ethereum ecosystem.
Finally, real-world asset (RWA) tokenization continues to gain momentum, bringing more traditional financial products onto the Ethereum blockchain.
Frequently Asked Questions
What is the Dencun upgrade?
The Dencun upgrade is a major update to Ethereum that combines changes to the execution layer (Cancun) and consensus layer (Deneb). Its centerpiece is EIP-4844, which introduces proto-danksharding to significantly reduce Layer 2 transaction costs and improve network scalability.
How does EIP-4844 affect gas fees?
EIP-4844 introduces “blobs” of data that are cheaper to store and process than traditional call data. This reduces the cost for Layer 2 networks to post data onto Ethereum, which in turn lowers transaction fees for users on L2s.
What are encapsulated zkEVMs?
Encapsulated zkEVMs are a proposed method of integrating zero-knowproof-based verification directly into Ethereum’s protocol. This would allow the base layer to natively validate transactions with privacy and efficiency, reducing reliance on external L2 systems for scaling.
Will L2s become obsolete after Ethereum upgrades?
No. Even with native zkEVM functionality, L2s will continue to provide value through faster pre-confirmations, custom MEV solutions, and EVM extensions. They will also remain important for user and developer engagement.
What is driving institutional interest in Ethereum?
Institutional interest is growing due to Ethereum’s price stability, the potential approval of spot ETH ETFs, and ongoing technical upgrades that enhance its utility, security, and efficiency.
How can I stay updated on Ethereum’s progress?
You can follow official Ethereum Foundation announcements, core developer calls, and trusted blockchain analytics platforms. 👉 Explore more strategies for tracking network upgrades and market trends.