If you’re managing a portfolio in today’s market and not paying attention to Ethereum, you might be missing out. That’s according to Wall Street’s Fidelity Investments.
Sure, Bitcoin takes the spotlight, but Ether has been steadily carving its place, especially if we’re talking performance, volatility, and return metrics.
Quantitative metrics play a huge role in assessing any asset’s performance and its fit in a portfolio. The key ones to focus on for Ether include Beta, CAGR, Volatility, Sharpe ratio, Sortino ratio, and Correlations.
These are gonna help us dissect how Ether stacks up against Bitcoin, and the results are pretty clear.
Better than Bitcoin?
When we compared Ether’s performance in the last four-year cycle (2020-2024) to Bitcoin’s earlier cycle (2016-2020), the former had the upper hand in many areas, showing that its return was stronger than the risk.
For those new to these metrics, the Sharpe and Sortino ratios measure risk-adjusted returns. The higher the number, the better the asset compensates you for its volatility.
Interestingly, the analysis doesn’t even include the staking yield you could have gotten, which sits around 3-5%. Ethereum’s main benefits come from price appreciation, not just the staking rewards.
Bitcoin did outperform Ether back in the 2016 cycle by 8% in CAGR. But the gap between the two’s beta (a measure of volatility compared to the broader market) in recent years is shrinking.
Ether has matured.
The volatility story: Declining over time
Volatility scares people off, but it’s not the monster it used to be. Over time, both assets have shown decreased volatility. Sure, there are dramatic swings, but those have been steadily declining.
Fidelity’s Zack Wainwright pointed out that Bitcoin’s volatility is on par with some of the most traded stocks. ETH is right behind.
Looking at rolling three-year returns for both Ether and Bitcoin, long-term holders rarely see losses.
Investors have only experienced 78 days of losses over nine years if they held for three years. Bitcoin, by comparison, had just 33 days of losses since it started trading in 2010.
That’s a solid argument for long-term investing. The longer you hold, the better your returns look.
The correlation
Now let’s talk correlation. People often argue that adding Ether to a portfolio doesn’t diversify much because it’s highly correlated with Bitcoin. They’re not wrong, but there’s more to it.
Despite Ethereum’s major technical upgrades, like its Merge to proof-of-stake in 2022 and the Deneb-Cancun upgrade in 2024, correlations between the two assets didn’t change much. That’s strange, right?
Bitcoin is still seen as a store of value, while Ether’s utility has expanded with the rise of decentralized finance (DeFi) and smart contracts.
Yet, the market still trades them as if they’re interchangeable because of how the market’s behaving.
Ether’s correlations might drop as the assets mature and investors start recognizing them for what they are, which is two different solutions to two different problems.
Stablecoins and Ethereum
One way Ether separates from Bitcoin completely is utility. Ethereum’s network has become the go-to platform for stablecoins thanks to transactions that demand speed and low fees.
Compared to traditional financial systems, Ethereum blows it out of the water. Settlement times take about 15 minutes. Now try getting your bank to move money that fast.
Layer 2 solutions are even faster, rivaling credit card speeds. The transparency is another advantage. Every transaction can be audited in real time, and it’s all on the public blockchain.
In 2023, the transfer value on Ethereum’s Layer 1 for stablecoins hit $3.5 trillion. Bitcoin? $3.4 trillion.
Ethereum’s strength is in what it has already built. Critics like to say newer platforms will eventually take over, but they’re ignoring the power of network effects.
Ethereum has spent over eight years building an incredibly strong ecosystem, and that kind of momentum isn’t easily disrupted.
Even though other platforms may offer better performance in some areas, Ethereum’s established liquidity is a major barrier for competitors.
Developers who build on Ethereum have access to massive pools of capital and users — why jump ship to a new network that doesn’t have the same liquidity?
As of July, Ethereum had 36% of all full-time blockchain developers working on its core protocol. When you include Layer 2s, that number skyrockets to 80%.
Think about that. Eighty percent of the brains in blockchain development are tied to Ethereum.
But Ether isn’t without its risks. For one, the network is more complex than Bitcoin, which brings technical risks.
Upgrades like Ethereum’s frequent protocol changes happen yearly, and with every new upgrade, there’s always the chance something could go wrong.
Another issue? You don’t have to hold Ether to invest in Ethereum’s success. Many of the applications on the network have their own tokens, so capital can flow into the ecosystem without directly boosting price.
This could cap Ether’s long-term price appreciation if applications end up taking the lion’s share of revenue.
