Two Prime Capital Drops All Exposure to Ethereum (ETH), Labeling It a Memecoin

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.

Algorithmic trading firm Two Prime has completely exited its exposure to Ethereum (ETH), concluding that the asset is now better defined as a memecoin than a predictable asset at institutional levels.

In a note on Monday, CEO Alexander Blume said the firm will now exclusively manage and lend against Bitcoin (BTC). He added that the firm believes 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 over $1.5 billion in loans backed by both cryptocurrencies 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.

“ETH’s statistical trading behavior, value proposition, and community culture have failed beyond a point worth engaging,” Blume wrote.

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.

Moreover, stated demand for new blockchain use cases is outpacing the capabilities of Ethereum’s mainnet, leading to a shift in liquidity and attention toward emerging ecosystems.

Discussing Ethereum’s rising gas fees, the firm said that while they are a concern for smaller traders, they may also indicate strong demand for Layer-2 networks. However, this creates a dilemma as these networks are effectively siphoning off the value that would otherwise accrue to Ethereum’s mainnet.

In essence, these Layer-2 chains are becoming independent blockchains, rendering Ethereum’s mainnet more like a settlement layer for cross-chain transfers. This can be seen as a form of internal competition that is eroding the value proposition of the original asset.

Finally, Two Prime’s analysis highlighted the implications of rapidly changing macroeconomic conditions, such as rising interest rates and inflation, which may not favor riskier assets like ETH in the current environment.

Despite issuing over $1 billion in crypto loans in 2024 alone, Two Prime’s lending division will now focus exclusively on Bitcoin-backed credit facilities due to its superior risk-adjusted return potential. The firm will continue to monitor the crypto markets for any shifts that could warrant a return to lending against Ethereum.