Two Prime Drops Ethereum, Focuses Exclusively on Bitcoin

Two Prime, a prominent digital asset derivatives firm, has announced a strategic shift to focus exclusively on Bitcoin (BTC) for its asset management and lending services. This decision comes after a thorough analysis of the market dynamics and the performance of Ethereum (ETH) over the past 15 months. Two Prime has been a significant player in the digital asset space, completing over $1.5 billion in loans secured by BTC and ETH. However, the firm has determined that the risk-reward profile of ETH no longer justifies continued engagement, given the availability of BTC as a more stable and predictable alternative.

The firm's decision is based on a data-driven approach, which has revealed that ETH has fundamentally changed its behavior. ETH has de-correlated from BTC and has exhibited much greater tail risk, trading more like a memecoin rather than a predictable asset. This unpredictability has created challenges for both algorithmic trading and ETH-backed lending, as the asset no longer behaves in a manner that aligns with institutional expectations. Even during the turbulence of Q1 2025, BTC remained within its fundamental behavior, whereas ETH saw several multi-standard deviation moves, indicating a risk-off environment and a general capitulation of long-term ETH holders.

Two Prime's analysis includes a comparison of 30-day vs. 30-day forward returns, which shows that ETH has exhibited very little rebound and a lot of negative momentum since the election in November 2024. In contrast, BTC has largely reverted, indicating that investors are "buying the dip" with BTC but not with ETH. Historically, these two assets have been highly correlated, but that correlation has diminished, reflecting their different use cases and market dynamics. ETH's volatility has also increased, behaving more like DOGE than BTC, which makes institutional participation less attractive and suggests declining trading volumes and market depth.

Furthermore, ETF buying of BTC has far outpaced that of ETH, with BTC's total supply consumed by ETFs being more than double that of ETH. This indicates that BTC has found a meaningful bid from mainstream retail and institutional participants, while ETH has struggled to gain similar traction. The failure of ETH’s ETF creates a reflexive loop whereby institutions dedicate fewer resources to its promotion and sale. BTC, on the other hand, has found mainstream acceptance, making it a more attractive investment option.

Two Prime's analysis also highlights the narrative differences between BTC and ETH. BTC stands alone in its use case as a store of value and a medium of exchange, with no direct competitor in the digital asset space. ETH, on the other hand, aims to be a Turing-complete decentralized computer, allowing for the development of various decentralized applications. However, ETH's first-mover advantage has been eroded by competitors like Solana, which offer faster transaction speeds, lower costs, and a better user experience. ETH's business model has also allowed layer 2 solutions to cannibalize much of its monetization, leading to a loss of market share to competitors.

Subjectively, Two Prime's leadership believes that ETH has become 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 decisions being hindered by slow processes. In contrast, BTC's consistent and predictable nature makes it a far better risk-weighted investment, with significant upside potential from global adoption. Two Prime's decision to focus exclusively on BTC reflects its commitment to generating alpha for its clients and its belief in BTC's superior risk-reward profile.