The Identity Dilemma of Ethereum: Is it a Cryptocurrency or a Shadow of Bitcoin?

Original Author: AJC

Original Compilation: Luffy, Foresight News

Among all mainstream cryptocurrency assets, the debate surrounding Ethereum is the most intense. Bitcoin's status as the leading cryptocurrency is widely recognized, while Ethereum's positioning remains unresolved. Some view Ethereum as the only credible non-sovereign currency asset besides Bitcoin; others believe that Ethereum is essentially a business facing declining revenues, tightening profit margins, and fierce competition from various public chains that offer faster transaction speeds and lower costs.

This controversy seemed to peak in the first half of this year. In March, the fully diluted valuation of Ripple (XRP) briefly surpassed that of Ethereum (notably, all of Ethereum's tokens are in circulation, while only about 60% of Ripple's total supply is circulating).

On March 16, Ethereum's fully diluted valuation was $227.65 billion, while Ripple's corresponding valuation reached $239.23 billion. This outcome was nearly unimaginable a year ago. Subsequently, on April 8, 2025, the exchange rate of Ethereum to Bitcoin (ETH/BTC) fell below 0.02, marking the lowest level since February 2020. In other words, Ethereum has completely retraced all its gains relative to Bitcoin from the previous bull market. At that time, market sentiment towards Ethereum had plummeted to a multi-year low.

To make matters worse, the price decline is just the tip of the iceberg. With the rise of competing ecosystems, Ethereum's market share in public chain transaction fees has continued to shrink. In 2024, Solana made a comeback; in 2025, Hyperliquid emerged as a strong competitor. Together, they reduced Ethereum's transaction fee market share to 17%, ranking fourth among public chains— a dramatic drop from its top position a year ago. While transaction fees may not represent everything, they are a clear signal reflecting the flow of economic activity. Today, Ethereum faces the most severe competitive landscape in its development history.

However, historical experience shows that significant reversals in the cryptocurrency market often begin at the most pessimistic moments. When Ethereum was declared a "failed asset" by outsiders, most of its apparent decline had already been absorbed by market prices.

By May 2025, signs of excessive bearishness towards Ethereum began to emerge. During this period, both the exchange rate of Ethereum to Bitcoin and its price in USD experienced a strong rebound. The ETH/BTC exchange rate climbed from a low of 0.017 in April to 0.042 in August, an increase of 139%; during the same period, Ethereum's price in USD surged from $1,646 to $4,793, a staggering increase of 191%. This upward momentum peaked on August 24, when Ethereum's price reached $4,946, setting a new all-time high. Following this revaluation, Ethereum's overall trend clearly returned to an upward trajectory. The leadership change at the Ethereum Foundation and the emergence of several treasury companies focused on Ethereum injected confidence into the market.

Before this round of increases, the differing fortunes of Ethereum and Bitcoin were vividly reflected in their respective exchange-traded funds (ETFs) markets. In July 2024, the Ethereum spot ETF was launched, but the inflow of funds was very sluggish. In the first six months after its launch, its net inflow was only $2.41 billion, in stark contrast to the record-breaking performance of Bitcoin ETFs.

However, with Ethereum's strong recovery, market concerns about its ETF inflows have dissipated. For the entire year, the net inflow of the Ethereum spot ETF reached $9.72 billion, while Bitcoin ETFs saw $21.78 billion. Considering that Bitcoin's market capitalization is nearly five times that of Ethereum, the inflow scale of the two ETFs is only 2.2 times apart, a gap far below market expectations. In other words, when adjusted for market capitalization, the market demand for Ethereum ETFs actually exceeds that of Bitcoin. This result completely overturned the narrative that "institutions lack genuine interest in Ethereum." Moreover, during specific periods, the inflow into Ethereum ETFs even directly surpassed that of Bitcoin. From May 26 to August 25, the net inflow into Ethereum ETFs was $10.2 billion, exceeding the $9.79 billion of Bitcoin ETFs during the same period, marking the first clear tilt of institutional demand towards Ethereum.

From the performance of ETF issuers, BlackRock continues to lead the market. By the end of 2025, BlackRock's Ethereum ETF holdings reached 3.7 million tokens, capturing 60% of the Ethereum spot ETF market. This represents a staggering increase of 241% compared to the 1.1 million tokens held at the end of 2024, with an annual growth rate far exceeding that of other issuers. Overall, the total holdings of Ethereum spot ETFs by the end of 2025 amounted to 6.2 million tokens, approximately 5% of its total supply.

Behind Ethereum's strong rebound, the key driving force is the rise of treasury companies focused on Ethereum. These reserves have created unprecedented stable and continuous demand for Ethereum, providing support that narrative speculation or speculative funds cannot match. If Ethereum's price trend marks a clear turning point, then the continuous accumulation by treasury companies is the deep structural change that facilitated this turning point.

In 2025, treasury companies accumulated a total of 4.8 million Ethereum tokens, accounting for 4% of its total supply, significantly impacting Ethereum's price. The standout performer was Bitmine (stock code: BMNR), led by Tom Lee. This company, originally focused on Bitcoin mining, began gradually converting its reserve funds and capital into Ethereum starting in July 2025. From July to November, Bitmine accumulated 3.63 million Ethereum tokens, maintaining a dominant position in the Ethereum treasury company market with a 75% holding ratio.

Despite Ethereum's strong rebound, the upward momentum eventually cooled. As of November 30, Ethereum's price had fallen from its August peak to $2,991, even below the historical peak of $4,878 from the previous bull market. Compared to the low in April, Ethereum's situation has significantly improved, but this round of rebound has not completely eliminated the structural concerns that initially triggered the market's bearish outlook. On the contrary, the debate over Ethereum's positioning has returned to public attention with even greater intensity.

On one hand, Ethereum is exhibiting many characteristics similar to Bitcoin; these characteristics are key to Bitcoin's ascent as a currency asset. Now, the inflow into Ethereum ETFs is no longer sluggish, and treasury companies have become a source of continuous demand. Perhaps most importantly, an increasing number of market participants are beginning to differentiate Ethereum from other public chain tokens, incorporating it into the same monetary framework as Bitcoin.

On the other hand, the core issues that dragged Ethereum down in the first half of this year remain unresolved. Ethereum's core fundamentals have not fully recovered: its market share in public chain transaction fees continues to be squeezed by strong competitors like Solana and Hyperliquid; the transaction activity on Ethereum's underlying network remains far below the peak levels of the previous bull market; despite the significant price rebound, Bitcoin has easily surpassed its historical high, while Ethereum still hovers below its historical peak. Even during the strongest months for Ethereum, many holders view this round of increase as an opportunity to cash out rather than a recognition of its long-term value.

The core issue of this controversy is not whether Ethereum has value, but how the asset ETH can achieve value accumulation from the development of the Ethereum network.

In the previous bull market, the market generally believed that the value of ETH would directly benefit from the success of the Ethereum network. This is the core logic of the "ultrasound money theory": the practicality of the Ethereum network would generate significant demand for token burning, thereby constructing a clear and mechanized value support for Ethereum assets.

Today, we can almost be certain that this logic is no longer valid. Ethereum's fee income has plummeted significantly, with no hope for recovery; at the same time, the two core areas driving the growth of the Ethereum network—real-world assets (RWAs) and institutional markets—are both centered around the US dollar as the core settlement currency, rather than Ethereum.

The future value of Ethereum will depend on how it can indirectly benefit from the development of the Ethereum network. However, this indirect value accumulation carries significant uncertainty. Its premise is that as the systemic importance of the Ethereum network continues to rise, more users and capital are willing to view Ethereum as a cryptocurrency and a store of value.

Unlike direct, mechanized value accumulation, this indirect path offers no certainty. It entirely relies on social preferences and collective consensus in the market. Of course, this is not a flaw in itself; but it means that Ethereum's value growth will no longer have a necessary causal relationship with the economic activities of the Ethereum network.

All of this brings the controversy surrounding Ethereum back to its core contradiction: Ethereum may indeed be gradually accumulating monetary premium, but this premium always lags behind Bitcoin. The market once again views Ethereum as a "leveraged expression" of Bitcoin's monetary attributes, rather than an independent currency asset. Throughout 2025, the 90-day rolling correlation coefficient between Ethereum and Bitcoin remained between 0.7 and 0.9, with the rolling beta coefficient soaring to multi-year highs, briefly exceeding 1.8. This indicates that Ethereum's price volatility far exceeds that of Bitcoin, but it also remains closely tied to Bitcoin's movements.

This is a subtle yet crucial distinction. The monetary attributes that Ethereum currently possesses are rooted in the market's recognition of Bitcoin's monetary narrative. As long as the market firmly believes in Bitcoin's non-sovereign store of value attributes, a portion of marginal market participants will be willing to extend that trust to Ethereum. Thus, if Bitcoin's performance continues to strengthen in 2026, Ethereum will also reclaim more ground.

Currently, Ethereum treasury companies are still in their early stages of development, with their accumulation of Ethereum primarily funded by common stock issuance. However, if the cryptocurrency market enters a new bull market, these institutions may explore more diversified financing strategies, such as adopting the model used by Strategy to expand Bitcoin holdings, issuing convertible bonds and preferred stocks.

For example, treasury companies like BitMine could finance themselves by issuing low-interest convertible bonds and high-yield preferred stocks, using the raised funds directly to accumulate Ethereum while staking these Ethereum to obtain continuous returns. Under reasonable assumptions, staking returns could partially offset the interest expenses on bonds and dividends on preferred stocks. This model would allow reserves to continuously accumulate Ethereum using financial leverage when market conditions are favorable. If the Bitcoin market enters a full bull market in 2026, this "second growth curve" of Ethereum treasury companies will further strengthen Ethereum's high beta attributes relative to Bitcoin.

Ultimately, the current market pricing of Ethereum's monetary premium still hinges on Bitcoin's performance. Ethereum has not yet become an autonomous currency asset supported by independent macro fundamentals; it remains a secondary beneficiary of Bitcoin's monetary consensus, and this beneficiary group is gradually expanding. Ethereum's recent strong rebound reflects that a portion of market participants are willing to view it as akin to Bitcoin, rather than an ordinary public chain token. However, even during relatively strong phases, market confidence in Ethereum remains closely tied to the continued strengthening of the Bitcoin narrative.

In short, while Ethereum's monetization narrative has emerged from its fractured predicament, it is far from settled. In the current market structure, combined with Ethereum's high beta attributes relative to Bitcoin, as long as Bitcoin's monetary narrative continues to materialize, Ethereum's price is likely to achieve substantial increases; and the structural demand from Ethereum treasury companies and corporate funds will provide tangible upward momentum. But ultimately, in the foreseeable future, Ethereum's monetization process will still depend on Bitcoin. Unless Ethereum can achieve low correlation and low beta coefficients with Bitcoin over a longer period, a goal it has never accomplished, its premium space will always be overshadowed by Bitcoin's halo.