Why do Bitcoin and Ethereum tend to fall together but not rise together? What are the reasons behind this phenomenon? Understanding the market dynamics and investor behavior can shed light on why these two leading cryptocurrencies often move in tandem during downturns, yet sometimes diverge during upward trends. Factors such as market sentiment, macroeconomic influences, and technological developments all play a role in this complex relationship.

Title: 《Why BTC and ETH Haven’t Rallied with Other Risk Assets》 Author: @GarrettBullish Translation: Peggy, BlockBeats

Editor’s Note: Amid the rise of multiple asset classes, the phased underperformance of BTC and ETH is often simply attributed to their “risk asset nature.” This article argues that the core issue is not macroeconomic but lies in the crypto market’s own deleveraging phase and market structure.

As deleveraging approaches its end and trading activity drops to lows, existing funds struggle to counteract short-term volatility amplified by high-leverage retail traders, passive funds, and speculative trading. Before new capital and FOMO sentiment return, the market is more sensitive to negative narratives, which is a structural outcome.

Historical comparisons suggest that this behavior is more likely a phase in a long-term cycle rather than a failure of fundamentals. This article attempts to step beyond short-term price movements, starting from cycles and structures, to re-understand the current position of BTC and ETH.

Below is the original text:

Bitcoin (BTC) and Ethereum (ETH) have recently underperformed other risk assets.

We believe the main reasons for this phenomenon include: the phase of the trading cycle, market microstructure, and manipulation by some exchanges, market makers, or speculative funds.

Market Background

First, the deleveraging decline since October last year has dealt a heavy blow to high-leverage participants, especially retail traders. A large amount of speculative capital has been cleansed, making the market overall fragile and risk-averse.

Meanwhile, stocks related to AI in China, Japan, South Korea, and the US have experienced extremely aggressive rallies; precious metals markets have also seen a FOMO-driven, meme-like surge. These asset rallies absorbed a large amount of retail funds—which is especially critical because retail investors in Asia and the US remain the main trading forces in crypto markets.

Another structural issue is that crypto assets have not yet truly integrated into traditional finance. In traditional finance, commodities, stocks, and forex can be traded within the same account with minimal friction when switching asset allocations; however, in reality, transferring funds from TradFi to crypto still faces regulatory, operational, and psychological barriers.

Additionally, the proportion of professional institutional investors in the crypto market remains limited. Most participants are not professional investors and lack independent analysis frameworks, making them easily influenced by speculative capital or market-making exchanges, driven by sentiment and narratives. Narratives like “four-year cycle” or “Santa Claus rally” are repeatedly reinforced, despite lacking rigorous logic or solid data support.

There is a common linear thinking in the market, such as attributing BTC’s price movements solely to events like the Yen’s appreciation in July 2024, without deeper analysis. Such narratives tend to spread quickly and directly impact prices.

Next, we will move beyond short-term narratives and analyze this issue from an independent thinking perspective.

Time Dimension Is Critical

Looking at a three-year cycle, BTC and ETH indeed underperform most major assets, with ETH performing the weakest.

However, extending to a six-year cycle (since March 12, 2020), BTC and ETH have significantly outperformed most assets, with ETH becoming the strongest performer.

From a longer-term perspective and in a macro context, the so-called “short-term underperformance” is essentially a mean reversion within a longer historical cycle.

Ignoring underlying logic and focusing only on short-term price fluctuations is one of the most common and deadly errors in investment analysis.

Rotation Is Normal

Before silver experienced a short squeeze in October last year, it was also one of the worst-performing risk assets; now, in a three-year cycle, silver has become one of the best performers.

This change is highly similar to BTC and ETH’s current situation. Although they perform poorly in the short term, in a six-year cycle, they remain among the most advantageous asset classes.

As long as the narrative of BTC as “digital gold” and a store of value remains fundamentally unrefuted, and ETH continues to integrate with the AI wave and serve as core infrastructure in the RWA (Real World Assets) trend, there is no rational basis to believe they will continue to underperform other assets in the long run.

Reiterating: ignoring fundamentals and drawing conclusions based solely on short-term price movements is a serious analytical mistake.

Market Structure and Deleveraging

The current crypto market bears a striking resemblance to China’s A-share market in 2015, which entered a deleveraging phase after a high-leverage-driven bull market.

In June 2015, after a leverage-driven bull market stalled and valuation bubbles burst, the A-share market entered a three-wave decline conforming to Elliott Wave theory (A–B–C). After bottoming in wave C, the market experienced months of sideways consolidation before gradually transitioning into a multi-year bull market.

The core drivers of that long-term bull were low valuations of blue-chip assets, improved macro policy environment, and significantly loosened monetary conditions.

Bitcoin (BTC) and the CD20 index in this cycle have almost perfectly replicated this “leverage—deleveraging” evolution, highly consistent in both timing and structure.

Their underlying similarities are clear: both market environments feature high leverage, extreme volatility, top formations driven by valuation bubbles and herd behavior, repeated deleveraging shocks, long and slow declines, persistent falling volatility, and futures markets in long-term contango.

In today’s market, this contango structure manifests as discounts in stocks related to digital asset treasuries (e.g., MSTR, BMNR) relative to their mNAV (adjusted net asset value).

Meanwhile, the macro environment is gradually improving. Regulatory certainty is increasing, with legislation like the Clarity Act progressing; the SEC and CFTC are actively promoting on-chain US equities trading.

Monetary conditions are also easing: rate cut expectations are rising, QT (quantitative tightening) is nearing its end, liquidity injections via repo markets continue, and market expectations for a dovish Fed chair are growing—all collectively improving overall liquidity.

ETH and Tesla: A Valuable Analogy

ETH’s recent price movements are highly similar to Tesla’s performance in 2024.

At that time, Tesla’s stock first formed a head-and-shoulders bottom, then rebounded, consolidated sideways, surged again, entered a prolonged topping phase, then sharply declined, and finally entered a long sideways period at low levels.

It wasn’t until May 2025 that Tesla finally broke upward, officially entering a new bull cycle. Its rally was mainly driven by increased sales in China, rising chances of Trump’s election, and the commercialization of political networks.

From the current stage, ETH’s technical and fundamental background closely resembles Tesla’s at that time.

Their underlying logic is also comparable: both carry technical narratives and meme attributes, attracted high leverage capital, experienced intense volatility, peaked in valuation bubbles driven by herd behavior, then entered a cycle of deleveraging adjustments.

Over time, market volatility gradually declines, while fundamentals and macro conditions continue to improve.

From futures trading volume, the market activity of BTC and ETH is approaching historic lows, indicating that the deleveraging process is nearing completion.

Are BTC and ETH “Risk Assets”?

Recently, a rather strange narrative has emerged: defining BTC and ETH simply as “risk assets” and using this to explain why they haven’t followed US stocks, A-shares, precious metals, or base metals higher.

By definition, risk assets typically feature high volatility and high beta. From behavioral finance and quantitative perspectives, US stocks, A-shares, base metals, BTC, and ETH all meet this standard and tend to benefit in “risk-on” environments.

But BTC and ETH also possess additional attributes. Due to DeFi ecosystems and on-chain settlement mechanisms, they can exhibit safe-haven qualities similar to precious metals under certain conditions, especially amid rising geopolitical tensions.

Labeling BTC and ETH as “pure risk assets” and claiming they cannot benefit from macroeconomic expansion is essentially a selective emphasis on negative factors narrative.

Common examples cited include:

• Potential EU–US tariffs triggered by Greenland issues
• Canada–US trade disputes
• Possible military conflicts between the US and Iran

This reasoning is fundamentally a form of “cherry-picking” and double standards.

Theoretically, if these risks were systemic, all risk assets should decline simultaneously, except perhaps for basic metals benefiting from war-related demand. But in reality, these risks do not have the basis to escalate into major systemic shocks.

AI and high-tech demand remain extremely strong and largely unaffected by geopolitical noise, especially in core economies like China and the US. Therefore, stock markets have not priced in these risks substantively.

More importantly, most of these concerns have been downgraded or disproven by facts. This raises a key question: why are BTC and ETH so sensitive to negative narratives but slow to react to positive developments or the fading of negative factors?

The Real Reason

We believe the main cause stems from the structural issues within the crypto market itself. Currently, the market is in the late stage of deleveraging, with overall sentiment tight and highly sensitive to downside risks.

Crypto markets are still predominantly retail-driven, with limited participation from professional institutions. ETF capital flows mainly reflect passive sentiment following rather than active judgment based on fundamentals.

Similarly, most DAT (Digital Asset Treasury) building methods are passive—whether through direct operations or via third-party passive fund managers, typically employing VWAP, TWAP, or other non-aggressive algorithmic trading strategies aimed at reducing intraday volatility.

This contrasts sharply with speculative funds, whose primary goal is to generate intraday volatility—more of which is downward-driven at this stage to manipulate prices.

Meanwhile, retail traders generally use 10–20x leverage. This makes exchanges, market makers, or speculative funds more inclined to profit from microstructure advantages rather than endure medium- to long-term price swings.

We often observe concentrated sell-offs during periods of low liquidity, especially when Asian or US investors are asleep, such as between 00:00–08:00 Asia time. These waves often trigger chain reactions, including forced liquidations, margin calls, and passive selling, further amplifying declines.

Without substantial new capital inflows or the return of FOMO, relying solely on existing funds is insufficient to counteract such market behaviors.

Definition of Risk Assets

Risk Assets refer to financial instruments with certain risk characteristics, including stocks, commodities, high-yield bonds, real estate, and currencies.

Broadly, risk assets are any financial securities or investments not considered “risk-free.” These assets share the feature of price volatility, with values that can change significantly over time.

Common types of risk assets include:

• Equities / Stocks: Shares of listed companies, affected by market conditions and company performance, with potentially large fluctuations.
• Commodities: Physical assets like oil, gold, agricultural products, mainly driven by supply and demand changes.
• High-Yield Bonds: Bonds offering higher interest rates due to lower credit ratings, with higher default risk.
• Real Estate: Property investments, with values influenced by market cycles, economic conditions, and policies.
• Currencies: Forex market currencies, which can fluctuate rapidly due to geopolitical events, macroeconomic data, and policy shifts.

Main Features of Risk Assets

• Volatility: Prices fluctuate frequently, offering both potential gains and losses.
• Return-Risk Tradeoff: Generally, higher risk assets offer higher potential returns but also higher chances of loss.
• Market Sensitivity: Their values are highly sensitive to interest rate changes, macroeconomic conditions, and investor sentiment.