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I last wrote for Two Bits on April 22, and it was entitled “The ETH Pain is not Over.” In that piece, I more or less fudded the stone-cold bottom of ETH/BTC when it went below 0.018… yikes! Since then, ETH/BTC has rallied 40% to over 0.025 as of writing, and sentiment has greatly improved. Today, I’d like to revisit my original thesis, that Ethereum has lost the non-sovereign digital store of value narrative to Bitcoin, and see if this ETH/BTC outperformance reveals something I had previously missed. 

Starting with the ETFs, both BTC and ETH have seen impressive flows. Since April 22, the BTC ETFs have seen an inflow of $7.95 billion, and the ETH ETFs have seen an inflow of $1.12 billion, 14% of BTC ETF flows. Furthermore, ETH’s current market cap is $334.74 billion, 15% of BTC’s $2.182 trillion market cap. As such, since April 22, ETF flows have actually been slightly overweight BTC, even after you adjust for market cap. While the situation for the ETH ETFs has certainly improved, the 7x gap in inflows between BTC and ETH highlights an important point: capital allocators still overwhelmingly prefer Bitcoin when allocating to a non-sovereign store of value. 

So what explains the recent ETH/BTC strength?

Mean reversion is the most obvious candidate. After all, ETH/BTC had fallen to a near five-year low in April, levels not seen since the days before Ethereum had any meaningful economic activity. In that context, a bounce from that kind of oversold condition isn’t surprising. 

Another possibility is the reemergence of the stablecoin narrative. USDC issuer Circle (CRCL) went public last week, and its IPO was one of the most impressive in recent years. After opening at $31, it surged to $138.57, a 347% increase over a 3-day trading period. The success of the CRCL IPO may have inadvertently revealed that TradFi is hungry for stablecoin exposure, which could serve as a tailwind for ETH. After all, despite ETH’s struggles, Ethereum is still the core financial layer for crypto and supports over 50% of the stablecoin supply.  

Then there’s the broader risk-on environment. Tech stocks have ripped. QQQ is back to the green year-to-date, and on the precipice of new all-time highs. In that context, ETH is arguably being treated as a form of tech beta: a macro proxy that benefits when animal spirits return. If that’s what’s driving this rally, then ETH is simply serving its role as tech beta.  

All of which brings me back to the original question: Is the ETH pain over? 

In the short term, maybe. Momentum has shifted, and narratives have improved. But in the longer-term fight for the digital monetary premium, I still believe the market has made up its mind. Bitcoin has won that battle, and ETH is no longer viewed as a credible challenger in that arena. ETH may still outperform in the coming weeks, especially if stablecoin flows and tech beta appetite continue. But until the ETF flows shift and the broader social consensus begins to favor Ethereum over Bitcoin in the store of value debate, this outperformance is likely short-lived.