Why Do Bitcoin and Ethereum “Fall with Risk Assets” but Don’t Always Rally?
Why Do Bitcoin and Ethereum “Fall with Risk Assets” but Don’t Always Rally?
When equities, credit, and high-beta assets are climbing, it feels intuitive to expect Bitcoin (BTC) and Ethereum (ETH) to lead the move. Yet in multiple market windows across 2025, many investors observed the opposite: BTC and ETH often sold off quickly during risk-off moments, but seemed slower to recover when broader markets turned risk-on.
It’s tempting to blame this on a single narrative—“crypto is just a risk asset.” But that explanation is incomplete. In many cases, the real driver is crypto-native deleveraging and market structure: where liquidity sits, how derivatives are positioned, and what kind of marginal buyer (or seller) dominates the tape.
Below is a market-structure-first framework for understanding why BTC and ETH can “follow the downside,” yet lag the upside—plus what signals to watch next.
1) The Macro Narrative Is Convenient—But Crypto Trades on Its Own Plumbing
Yes, BTC and ETH can correlate with risk assets. But correlation doesn’t tell you why price moves. Crypto has its own internal transmission mechanisms:
- Perpetual futures and leveraged positioning can force selling regardless of macro.
- ETF flows can be lumpy (strong on some days, absent on others).
- Liquidity fragmentation (especially across L2s and venues) changes how quickly spot demand shows up.
In short: macro sets the mood, but market microstructure often determines the outcome.
2) Deleveraging Creates Asymmetric Moves: Fast Down, Slow Up
The most common reason BTC and ETH “drop easily” is not fear—it’s mechanics.
In leveraged markets, drawdowns trigger a chain reaction:
- Price dips
- Margin tightens
- Positions get reduced or liquidated
- Forced selling pushes price lower
That feedback loop is why downside moves can look sharp and “inevitable,” even without new macro information.
On-chain and derivatives research frequently tracks this via open interest and liquidation behavior. For example, Glassnode highlighted futures deleveraging events where open interest dropped sharply during downside breaks—classic leverage flush conditions. (See: Glassnode’s on-chain note on futures deleveraging)
Another structural indicator is the CME futures premium, often used as a proxy for institutional positioning and cash-and-carry activity. When that premium compresses, the market can lose a steady arbitrage bid that previously supported spot. (See: CoinDesk on CME futures premium compression)
Key point: After a leverage flush, the market is “cleaner”—but rallies often need time to rebuild spot demand. That’s why upside can feel slower and more grindy than the downside.
3) The “ETF Bid” Is Real—But It’s Not Constant
Spot ETFs changed crypto market structure, but they did not guarantee a permanent daily inflow.
ETF-driven demand is:
- episodic (clustered on certain sessions)
- sensitive to positioning and rebalancing
- influenced by basis trades and hedging behavior
If you want to track whether BTC and ETH are being supported by sustained spot demand versus short-lived bursts, it helps to monitor transparent daily flow data such as:
ETH-specific flows also became an important narrative in mid-2025, including periods of large daily inflows. (Context: Investopedia on spot ETH ETF inflows and market momentum)
Why this matters for “lagging” behavior: When other risk assets rally, they may have continuous allocators (buybacks, systematic flows, retirement allocations). Crypto often needs a more visible marginal buyer to overwhelm residual sell pressure from prior deleveraging.
4) Ethereum Has an Extra Layer: Value Capture vs Scalability Success
Ethereum’s underperformance debates are rarely just macro. They’re also about how ETH captures value in a rollup-centric world.
Dencun reduced costs—and also changed fee dynamics
Ethereum’s Dencun upgrade introduced proto-danksharding (EIP-4844) with blobs designed to make rollups cheaper. (Overview: ethereum.org on Dencun and EIP-4844)
But lowering fees also meant less ETH burned via EIP-1559 during certain periods, which can weaken the “fee burn” tailwind that some investors expected. CoinDesk noted that after Dencun, ETH supply dynamics shifted as burn dropped with lower fees. (Background: CoinDesk on ETH turning inflationary post-Dencun)
Meanwhile, blob fee revenue itself has been volatile—sometimes surprisingly low—fueling ongoing discussion about L2 utilization and mainnet economics. (Example reporting based on Etherscan data: Cointelegraph on weekly blob fees hitting 2025 lows)
Upgrades keep improving UX, but price can lag fundamentals
Ethereum did ship major roadmap milestones. For instance, Pectra activated on mainnet on May 7, 2025, adding multiple changes aimed at usability and validator operations. (Reference: ethereum.org on the Pectra upgrade)
Core developers have also emphasized keeping subsequent upgrades focused—especially around scaling unlocks like PeerDAS—on the path toward later roadmap work planned into 2026. (Reference: Ethereum Foundation “Checkpoint #3: June 2025”)
The takeaway: ETH can be fundamentally stronger (better UX, better scaling) while still struggling in the short run if the market is repricing its near-term value capture, or if leverage and liquidity conditions are unfavorable.
5) BTC and ETH Often Become the “Funding Leg” of Crypto
During speculative bursts, capital frequently rotates into higher-beta tokens. Ironically, that can pressure BTC and ETH because they serve as:
- the deepest liquidity pools for raising cash quickly
- common collateral assets
- the hedge leg against alt exposure
So when trades go wrong, participants sell what they can sell—often BTC and ETH—making them look like they “follow the downside.” But when things go right, upside may disperse into smaller assets first, making majors appear to “lag.”
This is not a statement about long-term quality. It’s a statement about how crowded positioning unwinds.
6) What to Watch Next: Signs the Market Is Done Deleveraging
If the core issue is leverage and structure, the recovery checklist is also structural:
- Futures positioning stabilizes: open interest stops trending down; funding normalizes (not persistently extreme).
- Helpful lens: Glassnode’s derivatives and liquidation commentary
- Spot demand becomes persistent: multi-week positive ETF flow regimes rather than one-off spikes.
- Track: BTC ETF flows and ETH ETF flows
- Ethereum fee signals improve: blob usage and fee/burn dynamics show sustained demand rather than brief bursts.
- Context: ethereum.org on Dencun mechanics
- Regulated derivatives participation expands (without destabilizing retail-style leverage): growth in venue diversity and hedging depth can reduce reflexive liquidation cascades over time.
- Market structure snapshot: CME Group crypto highlights (Q4 2025)
7) Practical Takeaways for Long-Term Holders
- Don’t confuse “lagging” with “broken.” In many periods, BTC and ETH are simply digesting leverage and repositioning.
- Treat leverage as a market variable, not a personal tool. Even if you don’t use leverage, liquidations still affect your spot holdings.
- Self-custody matters most during deleveraging. When volatility rises, custody risks and operational risks tend to show up at the worst possible time.
If you’re holding BTC and ETH through these structural transitions, using a hardware wallet can help you stay focused on long-term security rather than short-term market noise. OneKey is designed for offline key storage and self-custody workflows—useful when market drawdowns are driven by forced selling and you want to reduce third-party risk exposure.
This article is for informational purposes only and does not constitute investment advice.
