Algorithmic trading firm Two Prime formally dropped its exposure to Ethereum (ETH), stating that ETH now trades as a memecoin rather than a predictable asset.
According to CEO Alexander Blume, the firm will now exclusively manage and lend against Bitcoin (BTC). He added that the firm believes that Bitcoin is the only digital asset that meets institutional standards for liquidity, predictability, and long-term investment viability.
The decision follows over a year of performance divergence between BTC and ETH, during which Two Prime had issued more than $1.5 billion in loans backed by Bitcoin and Ethereum through its lending division.
Despite that exposure, the firm concluded that Ethereum’s current behavior no longer aligns with risk-adjusted return expectations suitable for institutional portfolios.
Blume wrote:
“ETH’s statistical trading behavior, value proposition, and community culture have failed beyond a point worth engaging.”
De-correlation and elevated tail risk
A quantitative analysis cited by Two Prime shows that Ethereum’s volatility and return structure have decoupled from Bitcoin since the November 2024 US election.
While Bitcoin has shown classic mean-reversion characteristics, suggesting investor confidence and dip-buying activity, ETH has continued to trend lower with limited rebounds.
In scatterplots comparing 30-day returns with 30-day forward returns, ETH shows persistent negative momentum and lacks the symmetry observed in BTC data.
Additionally, ETH’s volatility now resembles that of memecoins like Dogecoin (DOGE). A comparison of 30-day range volatility across BTC, ETH, and DOGE shows that ETH has moved away from its historically moderate volatility profile, displaying sudden multi-standard deviation moves inconsistent with institutional-grade assets.
Weak institutional demand
Two Prime also pointed to a widening gap in institutional demand. Bitcoin ETFs currently manage over $113 billion in assets, consuming 5.76% of the total BTC supply. In contrast, ETH ETFs account for only $4.71 billion in assets, covering 2.22% of the ETH supply.
Despite Ethereum’s high market capitalization, much of its ETF inflows may be offset by short futures in basis trades, further diluting real demand.
The disparity creates a reflexive environment where underperformance in ETH products leads asset managers to dedicate fewer resources to promotion, which in turn reduces visibility and investor allocation.
According to Blume, ETH’s inability to maintain sustained institutional interest undermines its long-term viability as a core digital asset holding.
Erosion of Ethereum’s value proposition
Beyond trading behavior, Two Prime questioned Ethereum’s economic and technical model.
The firm noted that newer alternatives, such as Solana (SOL), are increasingly challenging Ethereum’s attempt to serve as a general-purpose decentralized computing platform.
These new infrastructures offer faster transaction throughput, lower costs, and a better user experience in latency-sensitive applications like gaming and payments.
Blume further argued that Ethereum Layer-2 networks have cannibalized much of the value capture that was previously tied to the mainnet. In his assessment, the asset lacks a clear monetization model that can support its valuation and utility claims.
Governance and cultural headwinds
Two Prime’s decision also factors in what it characterizes as a deterioration in Ethereum’s governance and focus.
Blume described Ethereum’s internal structure as bureaucratic, ideologically rigid, and slow to adapt to competitive market conditions. He argued that Ethereum has prioritized egalitarian ideals over effective product development and market relevance.
While Bitcoin offers a focused, singular use case as a decentralized store of value, the firm now sees ETH as one among many speculative tech platforms with no durable edge.
Blume concluded:
“The issue for ETH and its leadership is that everyone but them seems to know that.”
