ETH's Volatility Surges 2400% as Institutions Favor BTC

Over the past six months, Bitcoin (BTC) and Ethereum (ETH) have begun to exhibit distinct characteristics, with BTC maintaining its robustness and consistency while ETH has started to behave more like a memecoin, losing momentum in various aspects. ETH's statistical trading behavior, value proposition, and community culture have made it challenging for institutions to continue engaging with the asset. The risk-reward dynamics are difficult to justify, and the momentum of statistics such as new developers and users is moving in the wrong direction compared to competitors.

The data indicates that ETH has fundamentally changed, de-correlating from BTC and introducing much greater tail risk. During the turbulence of Q1 2025, BTC remained within its fundamental behavior, whereas ETH experienced several multi-standard deviation moves. This shift is due to a risk-off environment and a general capitulation of long-term ETH holders. For both algorithmic trading and ETH-backed lending, this unpredictability creates significant challenges, as the asset no longer behaves predictably, even by the high volatility expectations of digital asset markets.

Observing the 30-day vs. 30-day forward returns, ETH has shown very little rebound and a lot of negative momentum since the election in November 2024. Meanwhile, BTC has largely reverted, indicating that people are “buying the dip” with BTC but not with ETH. Historically, these two assets have been highly correlated, but that is no longer the case. This divergence makes sense as the assets are fundamentally different, sharing only the fact that they both operate on a blockchain.

ETH's 30-day volatility has started to behave more like that of Dogecoin (DOGE), which is less attractive for institutional investors and traders. Higher levels of volatility equate to lower position sizing, suggesting declining trading volumes and market depth for ETH. This makes institutional participation less attractive, further complicating ETH's position in the market.

ETF buying of BTC has far outpaced that of ETH by almost 24 times. Even with a higher market cap, BTC's total supply consumed by ETFs is more than double that of ETH's supply. The real demand for ETH may be overstated, as much of this buying is likely offset by short futures positions by traders engaging in the basis trade for delta-neutral yield. For digital assets to survive, they must find a meaningful bid from mainstream retail and institutional participants. The failure of ETH’s ETF creates a reflexive loop whereby institutions dedicate fewer resources to their promotion and sale. BTC has found the mainstream while ETH has floundered.

Unlike BTC, ETH’s value proposition is to be a Turing-complete decentralized computer, aiming to allow all types of decentralized applications to be built and operate on the platform. However, despite its first-mover advantage and network effects of scale, many rising competitors offer better fundamental technology and the ability to monetize. For example, Solana offers faster transaction speeds, lower costs, and a better user experience than ETH. For some slow transactions, ETH works perfectly fine, but for others that require near-zero latency, like gaming or payments, ETH simply can’t compete. Further, the business model has allowed ETH L2s to cannibalize almost all of the monetization of this infrastructure. This raises the question of how ETH can produce ongoing value if it can’t explain how it makes money. As a result, it has lost significant market share to Solana and others over the past few years, judged by the number of active developers, daily active users of products, and price appreciation.

ETH has many competitors with better fundamental offerings for speed and cost. From a subjective perspective, ETH became a victim of its early success, growing into a bureaucratic and ideological organization rather than one focused on building a tech product. The lack of strong leadership and clear focus has led to mission creep, with no single thing being done particularly well, and decisions being hindered by slow processes. While decentralization is a pleasant ideal, competitive start-up markets require efficient leadership. As digital assets become more deeply ingrained in the mainstream, most people are largely unconcerned about the speed and block size sacrifices that ETH makes for security. They do not care about the egalitarian governance values that paralyze making changes to the technology. They want a product that works. They want an investment that outperforms.

Bitcoin stands alone in its use case. It has no competitor in digital assets. This has been reflected by statements from finance leaders. Bitcoin aims to be one thing, and it does it well. Institutions flock to economies and assets that are consistent and predictable. Bitcoin's growth of hashrate, institutional buyers, distribution, and price all trend positively and consistently. The existing scale of the asset and the remaining upside of global adoption make BTC a far better risk-weighted investment than ETH. This can be seen in both measures of network growth and how the asset trades statistically. ETH and its competitors are essentially speculative tech startups fighting for market share. The issue for ETH and its leadership is that everyone but them seems to know that.