ETH Outlook Brightens: Hedge Funds Shift to Favor Ethereum

Ethereum (ETH) has recovered 56% over the past month, reaching $2,565.95 at the time of writing on May 15, 2025. This renewed growth for Ethereum, following months where it lagged Bitcoin and newer Layer 1 competitors, points to shifts in institutional strategy, emerging blockchain technology use cases, and a broader market move away from single-asset dominance.

The ETH recovery started around April 24, when ETH traded below $1,700, and accelerated between May 8 and May 13, briefly passing $2,700 before stabilizing.

Source: CoinMarketCap

Structural Developments Drive Ethereum’s Resurgence

While general crypto market sentiment improved, Ethereum’s rise also stems from key structural developments, as highlighted in a client note from research firm Bernstein. These factors include increased activity in stablecoin payments, the expansion of Layer 2 networks, and a notable change in hedge fund trading behavior concerning ETH.

Ethereum Strengthens Hold on Stablecoin and Tokenization Networks

According to Bernstein, Ethereum’s function within the stablecoin and tokenization network is growing. The Ethereum network currently supports more than half of the total stablecoin supply. This foundational role is gaining importance as traditional companies increasingly adopt digital payments.

Stripe’s $1.1 billion acquisition of stablecoin platform Bridge and Meta’s renewed focus on its stablecoin project have drawn attention back to Ethereum’s core infrastructure. As stablecoin payments and tokenized securities see wider use, Ethereum is re-emerging as a central platform for these transactions.

Dominance in Real-World Asset Tokenization Boosts Ethereum

This increased focus aligns with Ethereum’s growing dominance in the real-world asset (RWA) tokenization market. Data from RWA.xyz places the market size at over $22 billion, with major asset managers such as BlackRock and Franklin Templeton increasingly deploying assets on-chain.

As Ethereum continues to be the preferred platform for these tokenized financial products, its significance in institutional blockchain adoption is growing.

Layer 2 Ecosystem and Institutional Use Cases Expand ETH Value

Institutional adoption is also seen through Ethereum’s Layer 2 ecosystem. Networks like Base, started by Coinbase, generated roughly $84 million in revenue last year. These Layer 2s operate on Ethereum and require ETH for gas and settlement.

Bernstein suggests that their adoption by firms like Robinhood, which recently acquired WonderFi, an Ethereum Layer 2 operator, could expand tokenized offerings through retail brokerage platforms. This activity supports Ethereum’s value through increased usage and transaction volume.

Shifting Hedge Fund Strategies Favor Ethereum

Finally, changes in trading patterns are contributing to Ethereum’s recent price increase. Over the past 18 months, hedge funds have often used ETH as part of delta-neutral strategies, going long on BTC or SOL while shorting ETH. This short positioning is being reversed as the market narrative shifts toward blockchain utility and away from solely store-of-value use.

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