Ethereum’s price doesn’t care about Ethereum, says top investment firm Bitwise. What it cares about is Bitcoin and a sprinkling of monetary conditions.

The world’s second most valuable blockchain hosts over $162 billion in stablecoins — more than half the global total — according to DefiLlama. US regulators have passed crypto-friendly regulation that should benefit Ethereum.

Tokenised real-world assets worth $15 billion run on the network, while institutional access has improved through spot exchange-traded funds and CME futures markets. Jan van Eck, CEO of the $128 billion asset manager VanEck, has even said that Ethereum is “Wall Street’s token.”

Yet Ethereum’s price hovers 62% below its all-time high.

Bitwise Europe tried to figure out why Ethereum’s price has been lacklustre even while many tokens have enjoyed soaring rallies. The company analysed 406 weeks of Ethereum price data going back to May 2018, and built a statistical model to identify which factors actually drive Ethereum’s price.

Here’s what they are.

Bitcoin, Bitcoin, Bitcoin

Bitcoin price drives roughly 65% of Ethereum’s weekly price movements, according to Bitwise’s model.

For every 1% Bitcoin moves, Ethereum moves about 0.99% in the same direction. Ethereum basically trades like a high-beta Bitcoin proxy, not as an independent asset.

“Bitcoin alone explains roughly 65% of ETH’s return variance, meaning broad market direction has driven most of ETH’s weekly returns,” the Bitwise report states.

Translation: Ethereum goes where Bitcoin goes, everything else is mostly noise.

Easy money helps

The second most important factor, which explains about 11% of Ethereum’s price changes, is financial conditions.

This refers to how easy or tight money is in the broader economy.

As expected, since Ethereum is a risk-on asset, when money is easy and credit is flowing, Ethereum tends to rise. Conversely, when financial conditions tighten, it falls.

Beyond Bitcoin and macro conditions, only one other factor shows consistent impact: ETF flows.

Inflows and outflows from Ethereum ETFs explain about 10% of price movements, and act as a “steady, but small marginal driver,” according to Bitwise.

The flows are statistically significant — meaning they reliably affect price — but the magnitude is tiny.

What about fundamentals?

Here’s where it gets depressing for Ethereum investors who believe in the technology associated with the asset.

Network activity — the number of active addresses using Ethereum — explains only about 6% of price movements on average. Revenue from transaction fees matters even less.

In fact, Bitwise removed revenue from the final model entirely because it was “noise rather than signal.”

That means Ethereum’s price doesn’t reflect how much the network is being used or how much money it’s making.

“Ethereum has been priced more like a network-driven commodity than a business with durable cash flows,” Bitwise concluded. “Or at least, that is how the market currently treats it.”

The data backs Bitwise up. Ethereum’s network usage compared to its price is at the 6th percentile historically — meaning only 6% of periods have been worse. In other words, Ethereum is very expensive relative to how much it’s actually being used.

Ethereum has had no shortage of upgrades in the past few years, but they haven’t translated to eye-watering price rallies like some of its counterparts. Now investors know why — the market doesn’t care about fundamentals. It only cares about Bitcoin and a few marginal factors.

Until that changes, Ethereum’s price will keep following Bitcoin’s lead, regardless of what happens on the network itself.