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.”

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Nasdaq, the operator of one of the premier U.S. stock exchanges and a crypto index, is advising the U.S. regulators to carefully focus on defining digital assets in four buckets that will clearly determine which agency acts as referee, according to a 23-page letter sent to the Securities and Exchange Commission’s crypto task force.

“While a stock by any other word would still be a stock, the existing market ecosystem can readily absorb digital assets by establishing the proper taxonomy and calibrating certain rules to reflect what is truly new and novel about digital assets,” the letter argued in response to the invitation issued by the task force’s chief, Commissioner Hester Peirce, to weigh in on future regulations.

The four future categories of digital assets, in Nasdaq’s view, should be:

• financial securities (tokens tied to assets that are securities under existing definitions, like stocks, bonds and exchange-traded funds (ETFS), which Nasdaq said should be treated just the same as their underlying assets);
• digital asset investment contracts (tokenized contracts that check all the securities boxes under a “clarified version” of the Supreme Court’s so-called Howey test);
• digital asset commodities (meeting the U.S. definition of commodities)
• other digital assets (stuff that doesn’t fall anywhere else and shouldn’t have rules for securities or commodities imposed on it)

The securities categories belong in the hands of the SEC, which will be working with its cousin agency, the Commodity Futures Trading Commission, that will handle the commodities. Those agencies — presumably directed at some point by a new crypto law hatched by Congress — will figure out the precise border between their jurisdictions.

The letter, signed by John Zecca, the company’s chief regulator executive, argued that “digital assets that constitute financial securities must trade as they do today.”

Nasdaq also suggested that the two agencies should formulate a kind of crossover trading designation for platforms that can handle digital asset investment contracts, commodities and other types of assets under one roof.

In the letter, Nasdaq underlined its digital-asset credibility, saying its “trading and clearing services, market and trading surveillance, and central securities depository technology support digital assets platforms on six continents.” It contended that the regulators should consider imposing safety measures or further constraints on firms that want to handle investors’ activity from top to bottom, which is the common approach of existing crypto firms.

Read More: SEC ‘Earnest’ About Finding Workable Crypto Policy, Commissioners Say at Roundtable