Bernstein outlines three factors that drove Ethereum’s recent price surge

Ethereum has lagged behind Bitcoin and alternative Layer 1s throughout this cycle amid a wave of relative bearishness. And yet, since the crypto market's April lows, ETH has surged nearly 100% — gaining 65% in the last 30 days alone to tap $2,750. So what's driving the move?

Analysts at research and brokerage firm Bernstein, led by Gautam Chhugani, said in a Wednesday note to clients that several narratives have been put forward attempting to explain this performance.

While bitcoin claimed all-time highs, crossing the psychological $100,000 barrier, the ETH/BTC ratio has dropped 45% over the past year as bitcoin dominated store-of-value mindshare amid the success of Bitcoin exchange-traded funds and corporate treasury adoption, while retail flows shifted to faster Layer 1s like Solana, the analysts wrote. Ethereum, caught between its Layer 2 roadmap and limited ETF traction comparatively, was "stuck somewhere in the middle," they added — neither the best store of value, nor the best blockchain destination for speculative retail trenches.

Stablecoins and tokenization, Layer 2 institutionalization, and an ETH short unwind

However, according to the analysts, the narrative is beginning to change amid a boom in stablecoin and securities tokenization, Layer 2 institutionalization, and an ETH short unwind.

The cycle is expanding beyond store-of-value use cases, they said, with stablecoin payments and tokenized securities gaining real traction. Stripe's $1.1 billion acquisition of stablecoin platform Bridge and Meta's recent comments about reigniting its stablecoin venture are helping to bring back a focus on the underlying blockchains, and Ethereum — which holds 51% of the total stablecoin supply — is emerging as the key platform proxy for this growth trend, they added. 

Traditional finance giants like BlackRock and Franklin Templeton are also advancing adoption of a real-world asset tokenization market now valued at over $22 billion, according to RWA.xyz — with Ethereum again dominating deployment.

Secondly, while critics question the value accretion of Layer 2s to ETH, the Bernstein analysts said that with networks like the Coinbase-incubated Base earning revenue of around $84 million last year, Ethereum Layer 2s are taking a growing role in institutional crypto infrastructure. With Robinhood's recent acquisition of WonderFi — which also runs an Ethereum Layer 2 — brokers may soon offer tokenized equities on their own chains, they argued. Since these Layer 2s use ETH for gas and settlement, they help drive Ethereum demand and position it as a leading platform for institutional smart contract adoption, they added.

Finally, the third driver of ETH's recent outperformance is more tactical, in the analysts' view. Over the past 12 to 18 months, crypto hedge funds have often used ETH as a delta-neutral hedge — staying long BTC and SOL while shorting ETH. But as the narrative shifts toward institutional adoption of blockchain and stablecoin payments, and beyond store of value, ETH's role as the underperformer is becoming harder to justify, they said.

As a result, the resurgence of ETH and other non-bitcoin assets is good for crypto exchanges and broker-dealers, they argued, as a broader crypto market rally reinvigorates retail traders, driving stronger volumes.

Gautam Chhugani maintains long positions in various cryptocurrencies.