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Our Q3 report outlines a shifting macro landscape, evolving investor behavior and structural changes in crypto demand. While the Federal Reserve’s pivot and ETF flows are dominating headlines, the deeper story is one of divergence — between Bitcoin and Ethereum, between short- and long-term macro signals and between speculative and institutional capital.
The Federal Reserve’s dovish tone at Jackson Hole marked a pivotal shift in macroeconomic policy, with Chair Jerome Powell signaling a transition from prioritizing inflation control to supporting economic growth amid signs of labor market softening. This policy pivot has already begun to reshape market dynamics: short-term yields have declined, with the 2-year Treasury yield falling 25 basis points following the July jobs report, reflecting growing expectations of rate cuts.
Figure 1. US treasury 5s30s yield curve. Sources: Bloomberg, Block Scholes
Meanwhile, long-term yields have surged due to persistent inflation and rising fiscal concerns, steepening the 5s30s yield curve to levels not seen since 2021. In crypto markets, Bitcoin’s reaction function has notably shifted — its price is now more responsive to employment data than to inflation prints, suggesting a broader recalibration in the way investors interpret macro signals.
Overall, the current environment remains supportive for digital assets: falling short-term rates are enhancing liquidity conditions, while dollar weakness and fiscal instability continue to bolster Bitcoin’s appeal as a store-of-value asset.
Figure 2. ETH spot price (purple line, left-hand axis) and daily net inflows to US Spot ETH ETFs (red bars, right-hand axis). Sources: Farside Investors, Block Scholes
ETF inflows have become a central driver of price discovery in crypto markets, but the nature of that demand is undergoing a notable shift. Since July 2025, Ethereum Spot ETFs have significantly outpaced Bitcoin Spot ETFs, attracting $9.46 billion in net inflows compared to BTC’s $5.39 billion. This surge in capital has translated into clear market outperformance: ETH has rallied 39% over the same period, reaching a new all-time high of $4,946, while Bitcoin has declined by 7.1%.
Beyond price action, institutional conviction is deepening — public treasuries now hold 3.37 million ETH, representing 2.8% of the total supply of Ether. This rotation toward Ethereum reflects its broader utility across staking, decentralized finance and tokenization infrastructure, positioning it as the preferred asset for yield-seeking investors and strategic allocators looking to build exposure to the foundational layer of digital finance.
Figure 3. VIX Index (white, left-hand axis) and BTC spot price (orange, right-hand axis). Sources: Bloomberg, Block Scholes
Despite persistent macro uncertainty and political turbulence, volatility across crypto and traditional markets remains historically subdued. In August, Bitcoin’s short-term implied volatility dropped to a 2025 low of 26%, underscoring a broader trend of dampened price swings. The equity market’s VIX index also remains muted, even in the face of headline risks, such as Fed governor dismissals and escalating trade tensions. Meanwhile, Ethereum options are showing stronger demand, with short-term implied volatility frequently exceeding that of Bitcoin — signaling speculative interest in ETH’s upside potential.
This divergence in volatility profiles reflects shifting investor focus, but also highlights the stabilizing influence of ETF flows, particularly in Bitcoin. These flows have helped anchor price action as they reduce reactive swings and contribute to a more resilient market structure. While low volatility can often precede sharp directional moves, the current environment suggests consolidation instead of fragility, offering a window for strategic accumulation as opposed to defensive repositioning.
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