Arbitrum (ARB) has emerged as one of the best-performing cryptocurrencies after Ethereum's long-awaited Shanghai upgrade.

Notably, ARB price gained 4.28% to $1.36 on April 13, its highest level in two weeks. This also amounts to 18% gains from its $1.15 low a day ago when the Shanghai upgrade enabled staking withdrawals on Ethereum.

ARB/USDT daily price chart. Source: TradingView

To recap, Arbitrum is an Ethereum layer-2 (L2) scaling solution that aims to reduce network transaction congestion and transaction fees. As a result, the market typically perceives Ethereum's growth as a boon for L2 chains.

Here are three reasons why ARB could continue its bull run in Q2 to retest its record high of $1.60.

More utility for ARB

Arbitrum generated $2.5 million in profits in March 2023 via sequencing, according to Messari.

Arbitrum financial performance in 2023. Source: Messari

Notably, sequencer profits represent the difference in fee revenue generated by the L2 chain and the fee expense paid to the base L1 chain — all calculated in Ethereum's Ether (ETH) token, not ARB.

These profits will eventually go to Arbitrum's community-managed DAO called ArbitrumDAO as it grows to become more decentralized in the future.

Sequencers can create maximal extractable value (MEV) by arranging users' transaction requests — a feature missing from Arbitrum.

However, ArbitrumDAO may end up monetarizing MEV by auctioning off rights to produce blocks once they launch decentralized sequencing, asserts Kunal Goel, a researcher at Messari. This would open up opportunities for ARB as a staking token.

"The DAO will likely enforce ARB staking for sequencers to economically align incentives and to allow for slashing in case of any misbehavior, similar to validators in Proof-of-Stake networks," noted Goel, adding:

"This will add value to the token as users demand greater security from the protocol."

Capturing Optimism's market share

Arbitrum has outperformed its top Ethereum L2 rival, Optimism (OP), on almost all the key metrics throughout most of 2022 and 2023.

For instance, in 2022, Arbitrum generated $22 million in sequencer revenue and $6 million in profits. Meanwhile, Optimism made $18 million and $4 million in sequencer revenue and profits, respectively.

Similarly, the first quarter of 2023 saw Arbitrum outperforming Optimism's revenue by $4 million in revenue and $3 million in profits.

Arbitrum vs. Optimism key metrics. Source: Messari

Arbitrum also had a higher total value locked (TVL) through most of 2022 and 2023, with its dominance increasing further after the ARB airdrop in March.

As of April 13, Arbitrum's TVL was $2.27 billion compared to Optimism's $930 million.

Optimism versus Arbitrum TVL. Source: Defi Llama

"At current market prices, ARB trades at a discount to OP across all valuation multiples," Goel noted.

ARB price in descending triangle breakout

The ongoing run-up in Arbitrum price has broken above what appears to be a continuation pattern.

Related: ARB price to $2? Ethereum L2 rival Arbitrum will double in April, fractal suggests

Dubbed descending triangle, the pattern develops when the price consolidates between a falling trendline resistance and horizontal support. It resolves after the price breaks out of the range, pursuing the direction of its previous trend.

ARB has entered a similar breakout stage on April 13 after rising above its triangle's upper trendline with convincing volumes. 

ARB/USD four-hour price chart. Source: TradingView

The ARB/USD pair now a run-up toward $1.60 in Q2, its best level to date, and up 20% from current price levels. This upside target is measured after adding the maximum distance between the triangle's trendlines to the breakout point.

Conversely, ARB price risks short-term correction due to its overbought relative strength index (RSI) on a four-hour chart. In this case, the triangle's upper trendline will be the likely downside target at around $1.20.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.