Investing.com -- Ethereum has surged 65% over the past month, rebounding after a prolonged period of underperformance relative to Bitcoin .
According to Bernstein’s Gautam Chhugani, there are several factors that likely contributed to the recent underperformance.
While Bitcoin crossed $100,000 and established itself as the dominant store-of-value asset, the world’s second-biggest cryptocurrency lagged behind, with the ETH/BTC ratio down about 45% over the past year.
Also, much of Ethereum’s retail activity shifted to Layer 2 solutions like Coinbase’s Base, while faster blockchains like Solana attracted new retail applications.
As a result, Ethereum was left in an ambiguous position— “neither the best store of value, nor the best blockchain destination for speculative retail trenches,” Chuggani said in a Wednesday note.
But the analyst highlights three reasons why market dynamics are now shifting in Ethereum’s favor.
1) The first reason behind ETH’s recent rally is the broadening of the crypto narrative beyond Bitcoin. While Bitcoin’s rise has been fueled by ETF inflows and adoption as a corporate treasury asset, Bernstein notes that attention is now shifting to other use-cases.
“Stablecoin payments and securities tokenization are gaining mainstream adoption,” Chuggani said.
The renewed focus on stablecoins is particularly significant for Ethereum, which dominates with “a 51% share of minted stablecoin supply.” High-profile moves from companies like Stripe and Meta (NASDAQ: META ) have further renewed interest in stablecoin infrastructure.
2) Ethereum is also benefiting from the rise of Layer 2 networks tied to major institutions. “Coinbase runs a layer 2 chain called Base built on Ethereum, earning annual revenues of ~$85mn in 2024 in sequencer fees,” Chuggani wrote.
Moreover, the analyst highlights Robinhood’s acquisition of WonderFi, which also runs a Layer 2 on Ethereum, as another example of brokers building on Ethereum’s infrastructure. Since Layer 2 chains use ETH for gas and settlement, this trend supports both ETH demand and relevance.
Bernstein sees this as potentially positioning Ethereum “as an institutional category leader amongst smart-contract based blockchains.”
3) The third factor is more tactical. Chuggani notes that for the past 12–18 months, crypto hedge funds have favored long positions in Bitcoin and Solana while shorting ETH.
But with the narrative shifting toward real-world adoption and institutional blockchain use-cases, “it may be hard to justify ETH as a relative underperformer.” As these hedges unwind, ETH has room to catch up.
Bernstein adds that a broader rally beyond Bitcoin is also a positive signal for crypto exchanges and brokers, which could see improved retail activity following a weaker April.