Ethereum's Price Drops 51.3% in 2025 Amid Market Downturn and Bitcoin Dominance

Ethereum (ETH) has been experiencing a decline in capital inflow and market sentiment since December 2022. On-chain data analyst Murphy highlighted that ETH's on-platform traffic has decreased to below 35%, a significant drop from its peak of over 50% in September 2021. This decline indicates reduced engagement and a lagging flow in and out ratio compared to Bitcoin (BTC), suggesting a diminished focus on ETH within the trading platform.

Since December 2022, there has been a notable divergence between BTC’s MVRV (Market Value to Realized Value ratio) and ETH’s, with BTC consistently underperforming. This shift marks a departure from the previous seven years of alternating dominance and coincides with Ethereum's mainnet merge with the Beacon Chain on September 15, 2022, which ended the PoW mining era and adopted a PoS consensus mechanism.

Despite a general decline in capital inflow into both BTC and ETH since December, Bitcoin has sustained a positive inflow of $5.4 billion over the last month. In contrast, Ethereum has faced a stark net outflow of $6.2 billion since February 15. The allocation of capital remains a critical determinant of market sentiment and pricing trends; hence, for ETH to rejuvenate its position, it must regain interest from investors.

Ethereum has recently faced a decline in capital inflow and market sentiment, exacerbated by a broader market downturn and the increasing dominance of Bitcoin. The recent approval of options trading for several spot exchange-traded funds (ETFs) by the US Securities and Exchange Commission (SEC) marks a significant regulatory development for digital assets. This move is expected to increase liquidity, attract interest from institutional investors, and solidify Ethereum’s position as a major cryptocurrency. However, Ethereum’s smaller market cap relative to Bitcoin means it is also vulnerable to gamma squeezes, thereby increasing investor risks.

The official debut of options trading for spot Ethereum ETFs in the United States has been met with mixed reactions. BlackRock’s iShares Ethereum Trust (ETHA) was the first to list options, with trading commencing on the Nasdaq ISE. Shortly after, options for the Grayscale Ethereum Trust (ETHE) and the Grayscale Ethereum Mini Trust (ETH), as well as the Bitwise Ethereum ETF (ETHW), began trading on the Cboe BZX exchange. This move allows a wider range of investors, beyond crypto traders, to benefit from hedging and speculation opportunities on Ethereum’s price through options on familiar investment vehicles like ETFs without direct ownership.

Despite the positive regulatory development, Ethereum has been losing some ground in the market lately. The price of Ethereum plummeted to its lowest point since March 2023, coinciding with a broader market downturn. This drop was worsened by various factors, including Donald Trump’s Liberation Day. Further fueling this bearish sentiment, the ETH/BTC ratio has reached a five-year low, highlighting Bitcoin’s growing dominance over Ethereum. Large Ethereum holders are increasingly selling off substantial amounts, putting downward pressure on their prices. Ethereum’s value has fallen sharply by 51.3% since the beginning of 2025, and investor confidence has waned, as evidenced by a decrease in addresses holding at least $1 million in ETH.

Experts anticipate that Ethereum’s market position will improve with the newfound accessibility of options trading. Martins Benkitis, CEO and Co-Founder of Gravity Team, predicted that options give Ethereum institutional gravity, making it more programmable for fund strategies. This newfound accessibility of options trading will create additional opportunities for investors and the broader Ethereum ecosystem. Vivien Lin, Chief Product Officer at BingX, told that it will provide additional opportunities for portfolio diversification and create more avenues for ETH-based products. With options beyond the limited Bitcoin ETF offerings, investors may reconsider how they allocate their funds. This shift could result in more sophisticated trading strategies and greater participation in Ethereum-based products.

The SEC’s approval of Ethereum ETFs in July 2024 was significant because it allowed traditional investors to enter the crypto market without directly holding the assets. Now, with options trading also available, these benefits are expected to be even greater. The Ethereum ETF market will naturally become more liquid with increased participation through options trading. High trading volumes and hedging demands are expected to follow, with market makers required to hedge by buying more Ethereum to meet demand. This dynamic is expected to bring better liquidity to spot markets.

However, rapid surges in options trading could also have unintended consequences on Ethereum’s price, especially in the short run. As market makers rush to acquire more of the underlying asset in case of a higher volume of options calls, Ethereum’s price will naturally increase. This situation could lead to a pronounced gamma squeeze. When market makers hedge their positions in this scenario, the resulting buying pressure would create a positive feedback loop. Retail investors will feel more inclined to join in, hoping to profit from Ethereum’s rising price. The implications of this scenario are especially pronounced for Ethereum, considering its market capitalization is notably smaller than that of Bitcoin.

Retail traders’ aggressive buying of ETHA call options could compel market makers to hedge by acquiring the underlying ETHA shares, potentially leading to a more pronounced effect on the price of ETHA and, by extension, Ethereum. Joshua Lim, Global Co-head of Markets at FalconX, told that option sellers will generally dominate in the long run, but in short bursts, retail momentum traders could become massive buyers of ETHA calls and create gamma squeeze effects. Meanwhile, Gordon Grant predicts arbitrage-driven flows will further exacerbate price swings. Arbitrage involves exploiting price differences for the same or nearly identical assets across different markets or forms. This is done by buying in the cheaper market and selling in the more expensive one. According to Grant, traders will increasingly look for and exploit these price differences as the market for ETH options on different platforms develops.

Despite the positive developments, Ethereum faces competition from Bitcoin. In late fall of 2024, options trading started on BlackRock’s iShares Bitcoin Trust (IBIT), becoming the first US spot Bitcoin ETF to offer options. Though not even a year has passed since the original launch, options trading on Bitcoin ETFs experienced strong trading volumes from retail and institutional investors. Kadan Stadelmann, Chief Technology Officer of Komodo Platform, told that options trading for Ethereum ETFs will be comparatively underwhelming. Bitcoin will still be the cryptocurrency of choice for investors. Consequently, his outlook does not include Ethereum’s market position surpassing Bitcoin’s in the immediate term. The once-promised flippening of Bitcoin’s market capitalization by Ethereum remains unlikely. Conservative and more-monied investors likely prefer Bitcoin due to its perceived safety compared to other crypto assets, including Ethereum. Ethereum, in order to achieve Bitcoin’s prominence, must depend on growing utility in DeFi and stablecoin markets.

Ethereum is now the second cryptocurrency with SEC approval for options trading on its ETFs. This single move will further legitimize digital assets for institutions, increasing their presence in traditional markets and boosting overall visibility. Despite recent significant blows to Ethereum’s market position, this news is a positive development. Although it might not be sufficient to surpass its primary competitor, it represents a step in the right direction. As investors get used to this new opportunity, their participation level will reveal how beneficial it will be for Ethereum.