Why the S&P 500 could be at risk of a 10% to 20% pullback if ether falls behind bitcoin again

By Frances Yue

Since early July, ether has outpaced bitcoin by a wide margin, rising 44% compared with bitcoin's 4% gain

Ether has left bitcoin in the dust this summer, but stock-market investors should be on the lookout should its outperformance begin to falter.

History suggests that a resurgence by bitcoin (BTCUSD) in which it outperforms ether (ETHUSD) could be a warning sign that stock-market volatility is about to increase, with the S&P 500 potentially facing a decline of around 10% to 20%, according to Tom Essaye, founder and president of market analysis firm Sevens Report Research.

Since early July, ether has outpaced bitcoin by a wide margin, rising 44% compared with bitcoin's 4% gain, after trailing the world's largest cryptocurrency for months. Historically, a rising ether/bitcoin ratio has often coincided with sharp, short-lived rallies in equities that eventually gave way to market peaks, Essaye wrote in a Thursday note.

"In the last 10 or so years, every time we have seen such a robust and pronounced rise in the ETH/BTC crypto-pair, stocks have been sprinting higher in lockstep," Essaye said.

The S&P 500 SPX was on track for a record close Thursday afternoon, up 10.5% year to date and up 30.43% from its April low of 4,982.77, according to Dow Jones Market Data. The Dow Jones Industrial Average DJIA was up 7.1% year to date.

The key, however, is what happens when ether's outperformance fades. In past cycles, once the ETH/BTC rally lost momentum, stock-market volatility soon followed, with the S&P 500 typically suffering a drop of 10% to 20%.

Strong bursts in ETH/BTC have historically lined up with important turning points in equities, among them the "low-volatility" rally of 2017 that preceded the 2018 selloffs, the spike in late 2019 ahead of the 2020 pandemic crash, and the 2021 rally that gave way to the 2022 bear market, Essaye noted.

The ETH/BTC ratio has also surged 130% from its five-year low in April this year, moving in step with the strong tech-led rebound in stocks from their early April 2025 lows, Essaye added.

The one exception came in 2023 and 2024, when bitcoin consistently outperformed ether even as stocks remained strong, a clear departure from the earlier pattern. That contrast makes the current setup especially notable. With ETH/BTC rising again, investors should watch closely in case the historical relationship reasserts itself, Essaye said.

On Aug. 24, the ETH/BTC ratio touched 0.043, its highest level since September 2024, according to FactSet. Ether has gained 38.5% year to date, including a 75.9% surge in the past three months, compared with bitcoin's 20.3% year-to-date rise and 6.3% gain over the past three months.

"The risk of the long-ETH/short-BTC trade becoming exhausted appears underappreciated," Essaye warned, pointing to signs that the momentum has slowed. The uptrend in place since August could soon be tested from the technical perspective, he added.

ETH/BTC ratio

Read: Ether's summer surge may be slowing, but here's why $7,000 is still possible this year

-Frances Yue

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