There are growing signs that ether is poised to lead its rival, bitcoin, in 2025.
Key factors driving optimism for ether include:
Greater clarity in U.S. regulation under the new Trump administration.
Institutional interest in Ether ETFs.
Robust staking dynamics.
Open interest in Ether futures contracts surged to record levels, outpacing a similar rise in Bitcoin contract
Ether spent most of 2024 trailing behind its peers but has now firmly joined the crypto rally by crossing the $4,000 mark in December for the first time since March. This surge was sparked by bitcoin’s record-breaking climb, but well below its all time high of $4,900.
In 2024, ether gained around 53% compared to bitcoin’s 113% surge, however, ether’s recent performance shows promise. Since the U.S. election results, ether has increased 39%, outperforming bitcoin’s 35% gain. This signals a potential resurgence driven by market optimism over President Donald Trump’s anticipated pro-crypto policies.
Other key factors driving this optimism include robust staking dynamics, steady transaction fees and growing institutional interest, particularly through ETFs.
CME CF Ether-Dollar Reference Rate Full Year 2024
Source: CME Group
Ether futures
While the year started with muted volume, Ether futures (ETH) were the go-to product for risk management as spot ether ETFs began trading mid-year and volatility returned to the market toward year-end. In 2024, nearly 12 million contracts representing a total value of $256 billion traded between Ether and Micro Ether futures (MET). Thirty-nine percent of the notional volume traded was transacted in Q4 2024, as the crypto markets reacted to the U.S. election results, signaling a buoyant sentiment.
Source: CME Group
Large open interest holders, designated by the CFTC as entities holding 25 or more contracts, reached new weekly records throughout December, indicating growing client interest in regulated solutions to manage ether risk.
Ether-Bitcoin Ratio
The Ether/Bitcoin ratio, which measures ether’s performance relative to bitcoin and shows the number of bitcoin needed to buy one ether, reached its lowest level since launch on November 20 of 0.032857. This level may be its bottom, as we see an improved regulatory outlook and an increase in institutional adoption.
Ether/Bitcoin ratio Full Year 2024
Source: CME Group
While the two largest cryptocurrencies by market capitalization are highly correlated, as the relative strength of their correlation fluctuates, trading opportunities may present themselves.
The principal facility offered by Ether/Bitcoin Ratio futures is the ability to execute a relative value trade, thereby capturing ether and bitcoin exposure in a single trade, without needing to take a directional view.
This makes the ratio an ideal way to express a perspective on the two blockchains or the economic outlook of bitcoin and ether, particularly with regards to adoption and any idiosyncrasies that may affect one coin more than the other, resulting in trading opportunities.
What’s behind ether’s rebound?
1. Ether ETFs outperform bitcoin ETFs
Exchange-traded funds (ETFs) invested in bitcoin and ether in the U.S. are seeing record net inflows.
U.S. spot ether ETFs have received a cumulative $577 million in net inflows since their July 2024 launch, an overall success among the broad ETF universe. Between November 25 and November 29, spot ether ETFs even surpassed the daily inflows of bitcoin ETFs, with ether ETFs experiencing a net inflow of $467 million (including net inflows of $428 million in a single day), marking a shift in investor sentiment.
The approval of both bitcoin and ether ETFs represents a major milestone in the mainstream adoption of digital assets. Looking ahead, the interest of institutional investors could rise even further if regulatory approval allows asset managers to incorporate ethereum staking yields into ETFs.
2. Alt season
After months of ether underperforming bitcoin, traders may now see the Ether/Bitcoin ratio’s lower level as an opportunity with a potential gradual rotation from bitcoin to ether and other alt coins.
Typically, bitcoin leads the rally, then consolidates as ether and other altcoins catch up. This has been true this cycle where bitcoin’s dominance dropped from 61.7% in October to 57.4% in November then to 56.5% in December, suggesting that altcoins may have begun gaining momentum for a potential alt season.
Bitcoin dominance Full Year 2024
Source: CME Group
3. Staking yields
Ether investors can generate extra returns on top of their holdings by staking or locking their coins in the network in return for rewards. Currently 28% of ether’s supply is locked in staking contracts with the annualized reward rate averaging 3%. Under the new administration, with anticipated federal reserve interest rate cuts and continued upgrades to the blockchain, there could be an uptick in ether’s staking yield.
4. DeFi, smart contracts, DAPPS and NTFs
Ether’s value proposition extends beyond being a digital currency, as ethereum remains the dominant blockchain for building decentralized finance (DeFi) applications, DAPPS, smart contract platforms, non-fungible tokens (NFTs), tokenized assets and Web3 applications.
The total value locked (TVL) in ethereum-based DeFi projects grew over the past weeks, reaching $73.6 billion, according to DefiLlama.[1] The surge suggests rising confidence in ethereum as a platform for financial innovation.
5. Ether upgrades
In March 2024, ethereum implemented the Dencun upgrade, which reduced transaction costs for Layer 2’s and increased the transactions per second (TPS) at which they could post to Layer 1. The adoption of Layer 2’s has shifted noticeably over the last year. In addition, the Pectra upgrade, expected in Q1 2025, is one of the largest hard forks ever in terms of the Ethereum Improvement Proposal (EIP) count. It aims to improve protocol efficiency, enhance the user experience and expand data capacity, as well as pave the way for future scalability enhancements.
Conclusion
All eyes are on what the Trump administration will bring and the implications for the entire crypto market. The growing institutional interest in ether ETFs could signify a diversification of institutional portfolios, which were once largely focused on bitcoin. The possibility of staking rewards and ether’s central role in DeFi and NFT innovations in 2025 may bring more demand and participants for ether.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
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