MW Crypto fans thought this would be ether's big year. Then came the tariffs.

By Frances Yue

As concerns around President Donald Trump's tariff plans weighed on cryptocurrencies this week, ether experienced a sharper selloff than bitcoin - extending its underperformance despite some traders' hope that it could make a turnaround this year.

The U.S. on Monday agreed to delay tariffs on Canada and Mexico, which were first announced last weekend, for a month - but has still imposed a 10% additional tariff on imports from China. China retaliated on Tuesday by announcing a 15% tariff on U.S. coal and liquefied-natural-gas products as well as a 10% tariff on crude oil, agricultural machinery and large-engine cars that goes into effect next Monday.

Amid such uncertainty, ether (ETHUSD) was down 12.5% over the past seven days, underperforming bitcoin (BTCUSD), which declined 6.2%, according to Dow Jones Market Data. Ether also saw a flash crash last Sunday, extending its decline to as much as 27% at one point, before paring losses.

Ether saw a greater drop than bitcoin this week as more leverage has been built around the former, when measured relative to each coin's market cap, said Quinn Thompson, founder and chief investment officer at crypto hedge fund Lekker Capital. When an asset's price falls, greater leverage can amplify the price decline, as the highly leveraged traders who bet on a move the opposite direction may be forced to liquidate their positions, driving down the asset's price even further.

Some traders were betting that ether, which underformed last year, would catch up with bitcoin this year, Thompson said in a phone interview.

The open interest in ether futures on the Chicago Mercantile Exchange stood at 1.1 million ether as of Tuesday, according to data from CME. In comparison, open interest in bitcoin futures on CME amount to around 166,400 bitcoin. Open interest is the total number of outstanding derivative contracts that have not yet been settled.

While the dollar value of bitcoin futures is much greater than that of ether, the leverage of ether grew at a faster pace than bitcoin based on their market cap in the past few months, Thompson noted.

Open interest in bitcoin futures was at around $57.8 billion as of Tuesday, roughly double that of ether, which stood at around $23.2 billion. However, bitcoin's market cap was at around $2 trillion, roughly six times ether's market cap at $335.1 billion.

On the basis of the number of coins, the open interest of ether futures more than tripled its level in early November last year, showing an acceleration of the buildup in leverage. For bitcoin, the open interest was roughly the same level as in early November last year, after seeing an increase in November and December.

Some crypto bulls were hoping that the Trump administration would set a more friendly regulatory environment in the U.S., which may especially benefit ether, Thompson said.

The bulls hoped that the U.S. Securities and Exchange Commission would allow ether exchange-traded funds to stake the ether they hold, which may propel more investors to allocate to ether, driving up its price. Staking is a process whereby ether holders lock up their crypto to help validate transactions and secure the Ethereum blockchain, gaining a reward of additional coins.

Current ether ETFs do not stake the ether they invest in, a concession by issuers due to the regulatory uncertainty around staking under the Biden administration.

Staking ether currently generates a return of 3.2% annually, according to the Ethereum Foundation, which supports the blockchain.

Meanwhile, the crypto project World Liberty Financial, which is linked to Trump and his family, is built on the Ethereum blockchain. Some crypto bulls have been hoping that with Trump in the White House, he might announce policies that would be especially bullish for ether.

Read: Trump's $7 billion meme coin hasn't made him richer, Forbes and Bloomberg say

As major cryptocurrencies pulled back this week, bitcoin's dominance, or ratio of the crypto's market cap to the total crypto market cap, jumped to as high as 64.3% on Monday, the loftiest level since February 2021.

For now, "bitcoin was clearly a flight to safety asset in the crypto space," said James Lavish, managing partner at investment fund Bitcoin Opportunity Fund.

-Frances Yue

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 05, 2025 13:20 ET (18:20 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.