Original title: Why BTC and ETH Haven’t Rallied with Other Risk Assets
Original author: @GarrettBullish
Original translation by Peggy, BlockBeats
Editor's Note: Amidst rising prices across multiple asset classes, the temporary stagnation of BTC and ETH is often simply attributed to their "risk asset characteristics." This article argues that the core issue lies not in the macroeconomy, but in the deleveraging phase and market structure of the crypto market itself.
As leverage clearing nears completion and trading activity drops to low levels, existing funds are struggling to withstand short-term volatility amplified by highly leveraged retail investors, passive funds, and speculative trading. Until new funds and FOMO sentiment return, the market is more sensitive to negative narratives, a structural consequence.
Historical analogies suggest that this performance is more likely a phase of adjustment within a long-term cycle than a failure of fundamentals. This article attempts to move beyond short-term fluctuations and, starting from cycles and structures, re-understand the current positions of BTC and ETH.
The following is the original text:
Bitcoin (BTC) and Ethereum (ETH) have significantly underperformed other risk assets recently.
We believe the main reasons for this phenomenon include: the stage of the trading cycle, the market microstructure, and the market manipulation by some exchanges, market makers, or speculative funds.
Market Background
First, the deleveraging-driven decline that began last October dealt a heavy blow to highly leveraged participants, especially retail traders. A large amount of speculative capital was wiped out, making the market as a whole more fragile and risk-averse.
Meanwhile, AI-related stocks in China, Japan, South Korea, and the United States experienced extremely aggressive rallies; the precious metals market also experienced a surge driven by FOMO (fear of missing out), resembling a "meme rally." These asset price increases absorbed a significant amount of retail investor money—a crucial point, as Asian and American retail investors remain the primary trading force in the crypto market.
Another structural problem is that crypto assets have not yet been truly integrated into the traditional financial system. In the traditional financial system, commodities, stocks, and foreign exchange can be traded in the same account, and asset allocation switching is almost frictionless; however, in reality, transferring funds from TradeFi to the crypto market still faces multiple obstacles, including regulatory, operational, and psychological barriers.
Furthermore, the proportion of professional institutional investors in the crypto market remains limited. Most participants are not professional investors, lack independent analytical frameworks, and are easily influenced by speculative funds or exchanges that also act as market makers, thus being swayed by emotions and narratives. Narratives such as the "four-year cycle" and the "Christmas curse" are repeatedly touted, despite lacking both rigorous logic and solid data support.
There is a prevalent linear way of thinking in the market, such as directly attributing BTC price fluctuations to a single event like the appreciation of the Japanese yen in July 2024, without a deeper analysis. Such narratives are often spread rapidly and have a direct impact on prices.
Next, we will move away from short-term narratives and analyze this issue from the perspective of independent thinking.
The time dimension is crucial
Looking at a three-year period, BTC and ETH have indeed underperformed most major assets, with ETH being the weakest performer.
However, if we extend the timeframe to six years (since March 12, 2020), BTC and ETH have significantly outperformed most assets, with ETH becoming the strongest performing asset.
From a longer-term perspective and within a macroeconomic context, the current so-called "short-term underperformance" is essentially just a mean reversion process within a longer historical cycle.
Ignoring the underlying logic and focusing only on short-term price fluctuations is one of the most common and fatal mistakes in investment analysis.
Rotation is a normal phenomenon.
Before the short squeeze in silver prices last October, silver was one of the worst-performing risk assets; now, over a three-year period, silver has become the strongest performing asset.
This shift is highly similar to the current situation of BTC and ETH. Despite their poor short-term performance, they remain among the most advantageous asset classes over a six-year timeframe.
As long as the narrative of BTC as "digital gold" and a store of value has not been fundamentally disproven, and as long as ETH continues to integrate with the AI wave and exists as a core infrastructure in the RWA (Real World Asset) trend, there is no rational basis to believe that they will continue to underperform other assets in the long run.
To reiterate: ignoring fundamentals and drawing conclusions solely based on short-term price movements is a serious analytical error.
Market structure and deleveraging
The current crypto market bears a striking resemblance to the environment in 2015 when China's A-share market entered a deleveraging phase after being driven by high leverage.
In June 2015, after a leveraged bull market stalled and valuation bubbles burst, the A-share market entered a three-stage decline structure conforming to Elliott Wave Theory (A–B–C). After the C wave bottomed out, the market underwent several months of sideways consolidation before gradually transitioning into a multi-year bull market.
The core driving force behind that long-term bull market came from the low valuation of blue-chip assets, the improved macroeconomic policy environment, and the significant easing of monetary conditions.
Bitcoin (BTC) and the CD20 index have almost completely replicated this "leveraging-deleveraging" evolution path in this cycle, showing a high degree of consistency in both timing and structural form.
The underlying similarities are quite clear: both market environments share the following characteristics: high leverage, extreme volatility, a top driven by valuation bubbles and herd behavior, repeated deleveraging shocks, a long and slow decline, a sustained decrease in volatility, and a long-term contango structure in the futures market.
In the current market, this positive price spread structure is reflected in the fact that the stock prices of listed companies related to digital asset vaults (DAT) (such as MSTR, BMNR) are at a discount relative to their mNAV (adjusted net asset value).
Meanwhile, the macroeconomic environment is gradually improving. Regulatory certainty is increasing, with legislation such as the Clarity Act driving continued progress; the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are also actively promoting the development of on-chain U.S. equities.
Monetary conditions are also easing: rising expectations of interest rate cuts, the nearing end of quantitative tightening (QT), continued injections of liquidity into the repo market, and increasingly dovish market expectations for the next Fed chair are all contributing to an improved overall liquidity environment.
ETH and Tesla: A Valuable Analogy
The recent price movement of ETH is highly similar to the performance of Tesla in 2024.
At that time, Tesla's stock price first formed a head and shoulders bottom pattern, then rebounded, consolidated sideways, surged again, then entered a long period of topping out, and then fell rapidly, and then consolidated sideways at a low level for a long time.
Tesla finally broke through resistance in May 2025, officially starting a new bull market. Its upward momentum primarily stemmed from increased sales in the Chinese market, a rising probability of Trump's election, and the commercialization of its political networks.
From the current perspective, ETH, in terms of both its technical pattern and fundamental background, shows a high degree of similarity to Tesla at that time.
Their underlying logic is also comparable: both carry both technical narratives and meme attributes, both have attracted a large amount of highly leveraged funds, experienced violent fluctuations, peaked in valuation bubbles driven by group behavior, and then entered a period of repeated deleveraging adjustment.
As time went on, market volatility gradually declined, while the fundamentals and macroeconomic environment continued to improve.
Judging from futures trading volume, market activity for BTC and ETH is nearing historical lows, indicating that the deleveraging process is nearing its end.
Are BTC and ETH "risky assets"?
Recently, a rather strange narrative has emerged in the market: simply defining BTC and ETH as "risk assets" to explain why they have not followed the rise of US stocks, A-shares, precious metals, or base metals.
By definition, risky assets typically exhibit high volatility and high beta characteristics. From both behavioral finance and quantitative statistics perspectives, US stocks, A-shares, base metals, BTC, and ETH all meet this criterion and often benefit in a "risk-on" environment.
However, BTC and ETH also possess additional attributes. Due to the existence of the DeFi ecosystem and on-chain settlement mechanisms, they also exhibit safe-haven characteristics similar to precious metals in certain situations, especially when geopolitical pressures rise.
Simply labeling BTC and ETH as "pure risk assets" and asserting that they cannot benefit from macroeconomic expansion is essentially a narrative that selectively emphasizes negative factors.
Frequently cited examples include:
Potential EU-US tariff conflict stemming from Greenland issue
Canada-US tariff dispute
And a possible military conflict between the United States and Iran
This approach to argumentation is essentially a form of "cherry-picking" and double standards.
Theoretically, if these risks were truly systemic, then all risky assets, except for base metals that might benefit from wartime demand, should have fallen in tandem. However, in reality, these risks do not have the basis to escalate into a major systemic shock.
Demand for AI and high-tech related technologies remains extremely strong and is largely unaffected by geopolitical noise, especially in core economies such as China and the United States. Therefore, the stock market has not substantially priced in these risks.
More importantly, most of these concerns have been downgraded or refuted by facts. This raises a crucial question: why are BTC and ETH so sensitive to negative narratives, yet slow to react to positive developments or the fading of negative factors?
The real reason
We believe the main reason stems from structural problems within the crypto market itself. The market is currently in the final stages of a deleveraging cycle, with participants generally exhibiting tight sentiment and being highly sensitive to downside risks.
The crypto market remains retail-driven, with limited participation from professional institutions. ETF fund flows reflect more of a passive, sentiment-driven approach than active allocation based on fundamentals and judgment.
Similarly, most DAT (Digital Asset Vault) platforms tend to build positions passively—whether through direct trading or through third-party passive fund managers, they typically employ non-aggressive algorithmic trading strategies such as VWAP and TWAP, with the core objective of reducing intraday volatility.
This contrasts sharply with speculative funds, whose primary objective is precisely to create intraday volatility—which, at the current stage, is more pronounced in a downward direction—to manipulate price behavior.
At the same time, retail traders commonly use leverage of 10–20 times. This makes exchanges, market makers, or speculative funds more inclined to profit from market microstructures rather than bear medium- to long-term price fluctuations.
We frequently observe concentrated selling during periods of low liquidity, particularly when Asian or US investors are asleep, such as between 00:00 and 08:00 Asian time. Such volatility often triggers a chain reaction, including forced liquidations, margin calls, and passive selling, further amplifying the decline.
In the absence of substantial new capital inflows or before FOMO sentiment returns, relying solely on existing funds is insufficient to counter the aforementioned types of market behavior.
Definition of risky assets
Risk assets are financial instruments that have certain risk characteristics, including stocks, commodities, high-yield bonds, real estate, and currencies.
In a broad sense, risky assets refer to any financial security or investment instrument that is not considered "risk-free". These assets share the common characteristic of price volatility, and their value may change significantly over time.
Common types of risky assets include:
Stocks (Equities / Stocks):
The price of a listed company's shares is affected by a variety of factors, including market conditions and the company's operating status, and may fluctuate significantly.
Commodities:
The prices of physical assets such as crude oil, gold, and agricultural products are mainly affected by changes in supply and demand.
High-Yield Bonds:
Bonds with lower credit ratings offer higher interest rates, but also come with a higher risk of default.
Real Estate:
The value of real estate investment fluctuates with market cycles, economic environment, and policy changes.
Currencies:
The prices of various currencies in the foreign exchange market can fluctuate rapidly due to geopolitical events, macroeconomic data, and policy changes.
Key characteristics of risky assets
Volatility
The prices of risky assets fluctuate frequently, which can bring both gains and losses.
Investment returns come with risks.
Generally speaking, the higher the asset risk, the higher the potential return, but at the same time, the probability of loss is also greater.
Highly sensitive to market conditions.
The value of risky assets is influenced by a variety of factors, including changes in interest rates, macroeconomic conditions, and investor sentiment.
