For the past six years, Two Prime, an SEC-Registered Investment Advisor, has operated as one of the largest digital asset derivatives firms in the world by volume. In addition, over the past 15 months, Two Prime Lending has become the second-largest lender globally for BTC- and ETH-secured loans, having completed over $1.5 billion in loans. Our firm has traded and lent against these two assets because they were the only two liquid enough for institutional participation. Despite the success we have had with ETH, we have determined as a firm to focus only on BTC asset management and lending going forward. ETH’s statistical trading behavior, value proposition, and community culture have failed beyond a point that is worth engaging. The risk-reward is simply unjustifiable at this point with BTC available as an alternative.
As an algorithmic trading firm, we value data more than narratives. And the data suggests ETH has fundamentally changed. It has de-correlated from BTC and added much greater tail risk. It trades now like a memecoin rather than a predictable asset. Even during the turbulence of Q1 2025, bitcoin remained within its fundamental behavior, whereas ETH saw several multi-standard deviation moves. This comes from a risk-off environment and a general capitulation of long-term ETH holders on the asset. For both algorithmic trading and ETH-backed lending, this creates a headache as the asset no longer behaves predictably, even by the high volatility expectations of digital asset markets.
This chart shows 30-day vs. 30-day forward returns. It is a method for observing an asset's momentum. Dots in the lower left quadrant mean that the asset is moving in a negative direction. Assets that hover near the middle show mean reversion characteristics. Since the election in November of 2024, ETH has shown very little rebound and a lot of negative momentum. Meanwhile, bitcoin has largely reverted, meaning people are “buying the dip.” With ETH, they are not. Historically, these two assets have been highly correlated, but that is no longer the case. This makes sense as the assets are actually quite different and simply share the fact that they both operate on a blockchain.
In this chart, we observe the amount of volatility over a 30-day period for BTC, ETH, and DOGE. High volatility can be profitable at times, but for institutional investors and traders, higher levels of volatility equate to lower position sizing. As the chart shows, ETH volatility has behaved more like DOGE than BTC since the start of the year. This makes institutional participation less attractive, suggesting declining trading volumes and market depth.
Lastly, we can see that ETF buying of BTC has far outpaced that of ETH by almost 24 times. Even with a higher market cap, BTC total supply consumed by ETFs is more than double that of the ETH supply. The real demand here may even be overstated for ETH, 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 like BlackRock dedicate fewer resources to their promotion and sale. BTC has found the mainstream while ETH has floundered.
Narratives do matter, though. Unlike BTC, ETH’s value prop is to be a Turing-complete decentralized computer. It aims to allow all types of decentralized applications to be built and operate on the platform. However, though ETH had a first-mover advantage and benefited from network effects of scale, many rising competitors have better fundamental technology and the ability to monetize. The most obvious example is Solana. Without getting too deep into the data, Solana and others offer 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 essentially allowed ETH L2s to cannibalize almost all of the monetization of this infrastructure. How does something 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.
Finally, and most subjectively, the vibes are just wrong. From my 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. It aims to be one thing, and it does it well. Institutions flock to economies and assets that are consistent and predictable. 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.