Coinbase in-depth analysis: Ethereum vs Solana, are institutional investors caught in a "this or that" dilemma?

Source: Monthly Outlook: The Great Ethereum vs Solana Debate

Author: David Duong, CFA - Global Head of Research

Translated by: Lenaxin, ChainCatcher

ChainCatcher Editor’s Summary

This article is organized based on the latest monthly outlook research report released by Coinbase. The report points out that as the crypto market gradually warms up, institutional investors' focus is shifting from Bitcoin to other crypto assets like Ethereum and Solana. Despite the increase in attention, the price trends of Ethereum and Solana in the short term will still be more influenced by technical factors.

Overview

Institutional funds continue to flow into the BTC market, with Bitcoin currently accounting for 63% of the total market capitalization of cryptocurrencies. However, recent market attention is shifting towards mainstream tokens like ETH and SOL, which exhibit valuation advantages against the backdrop of Bitcoin reaching an all-time high.

1. Key factors influencing next quarter's market conditions include:

• Progress on the SEC's approval of spot ETFs.

• The possibility of integrating staking features into ETF products.

• And the ongoing entry of institutional funds.

1. It is worth noting that there has been a long-standing tendency in the crypto community to compare ETH and Solana in opposition, but in fact, the technical routes and investment logic of the two are showing differentiated development and have the potential to coexist.

Currently, the crypto community generally simplifies the competition between Ethereum and Solana to a "choose one" proposition, but in fact, the technical architecture and investment logic of both are demonstrating differentiated development, with potential for parallel growth.

For instance, institutional participants are increasingly using ETH as a proxy for the broader real-world asset (RWA) theme, covering a wider range of areas including stablecoins, payments, and tokenization.

The investment philosophy of Solana focuses on its advantages in speed, user engagement, and revenue generation compared to competitors. While its activity is mainly concentrated on memecoin trading, it is also gaining attention in other areas.

In the short term (Q3 2025), with the overall market sentiment improving, the market momentum of these two tokens will be more driven by technical factors (i.e., supply and demand factors) rather than fundamentals, and the substantial impacts of network technology upgrades may be relatively limited.

Erroneous Dichotomy

The technical route dispute between Ethereum (ETH) and Solana (SOL) has long influenced institutional investors' valuation of blockchain platforms. Market opinions are clearly polarized: traditional institutional investors generally value Ethereum's security and decentralization features, making it important infrastructure in the realm of tokenizing real-world assets (RWA); whereas supporters argue that Solana has a competitive edge due to its higher transaction speed and lower costs. This technical discussion is becoming more complex with the ongoing development of Ethereum's Layer 2 scaling solutions.

Table 1. Comparison of network metrics between Ethereum and Solana

These arguments represent an erroneous dichotomy, not because the differences between the technologies are not real or important, but because the reasons for engaging with ETH, SOL, or both at any given time are more sensitive to market conditions.

When Will the Altcoin Season Arrive?

A significant distinction between the current cryptocurrency cycle and previous cycles is the absence of an altcoin season. Data shows that over the past year, many retail investors have suffered severe losses while trading meme coins and long-tail altcoins, leading to insufficient funds or a cautious stance. Against this background, although some altcoins have outperformed ETH and SOL recently, the price trends still make many institutional investors inclined to hold large-cap stocks.

The Turning Point for ETH

At the beginning of May, a large-scale short squeeze occurred in the ETH market, with liquidation volumes significantly rising. Figure 1 shows that in May, about $897 million (374,000 ETH) worth of ETH shorts were liquidated, compared to just $575 million in April and $467 million in March. This triggered a technical-driven surge, highlighting a significant amount of leverage positions in ETH, leading to short covering and subsequent replenishment. As a result, this also began to limit ETH's ability as a financing currency against long-tail altcoins, which had been a strategy adopted by many market participants over the past 12-18 months.

Figure 1. ETH short futures liquidation volumes rose in May

In fact, the beta coefficient of ETH relative to the cryptocurrency market (represented by the COIN50 index of the top 50 cryptocurrencies by market capitalization) rebounded to around 1 in mid-June. (ETH's beta coefficient dropped to 0.92 in July, still above SOL's 0.81 and BTC's 0.32). In other words, ETH's returns are currently in sync with the overall performance of the cryptocurrency market. See Chart 2. This makes ETH an attractive choice for use in a barbell strategy to hedge against tokens further out on the risk curve, as these ETH long positions can help anchor those with higher risk exposure and asymmetric upside.

Figure 2. The beta coefficient of ETH relative to the cryptocurrency market is very close to 1

Meanwhile, proposed upgrades such as EIP-9698 (increasing Ethereum's gas cap from 36 million to 3.6 billion) and EIP-7983 (capping the maximum gas per transaction) have limited effects on ETH's performance improvement. These technical improvements mainly focus on enhancing transaction throughput and block execution efficiency. A more significant change in the current market is the growing interest of institutional investors in tokenized stocks and risk-weighted assets (RWA), leading to increased funding attention on related infrastructure tokens, as investors begin to speculate on the platforms that may host these assets.

Figure 3. Stablecoin network transfer volume (in USD)

Expansion of the Solana Ecosystem

On the other hand, Dune Analytics indicates that since the end of Q2 2024, Ethereum's share in on-chain activity has been continuously declining, while Solana currently accounts for 44% of total blockchain activity. Figure 4 showcases this index data, which combines three key indicators: transaction fees (weight 45%), transfer volume in USD (weight 45%), and number of transactions (weight 10%). The higher weight of fees and transfers reflects meaningful activity better than the number of transactions. This trend suggests a fundamental shift in blockchain adoption patterns over the past year.

Figure 4. A comprehensive view of on-chain adoption

Solana's network activity is mainly driven by memecoin trading, especially since the launch of pump.fun in January 2024, which has become a major driver of Solana's expansion. The challenge for Solana is that interest in memecoins may peak by early 2025, with data showing that over 60% of mature memecoin projects currently originate from the letsBONK.fun platform. Market observations indicate that the memecoin trading frenzy might peak in early 2025, but it is expected to maintain some level of market activity. With events like the July 12 launch of the PUMP token, investors can participate in the memecoin market through various channels, no longer limited to merely going long on SOL tokens.

Nevertheless, testing Solana's capability to manage massive transaction volumes could enable it to align its products and market with other areas of the rapidly expanding crypto ecosystem. Indeed, Solana recently launched the Solana Attestation Service as a KYC/AML layer to serve capital market opportunities. The Solana Foundation also released a white paper in May titled "Tokenized Stocks on Solana: A New Paradigm for Capital Markets," further clarifying its direction in digitizing traditional financial assets.

Figure 5. "Graduated" token ratios and active address comparisons

However, currently, the price of SOL will be more driven by technical factors, such as the growing demand for enterprise fund management tools and the inflow from U.S. spot SOL ETFs, with regulatory information suggesting that these SOL ETFs could receive approval as early as this quarter. (The REX-Osprey Solana + Staking ETF is not a product formally approved by the SEC, but the SEC has unveiled a new framework that could shorten the approval time for future ETFs.) On the technical side, some meaningful upgrades may be on the horizon, such as Solana's Alpenglow proposal—a transformative upgrade that will replace the current consensus mechanism, speeding up consensus through local timers and off-chain voting mechanisms. This aims to enhance network performance and reduce validator costs. However, market analysis indicates that the current price fluctuations of SOL have limited correlations with these technical upgrades.

Corporate Demand

In 2025, corporate financial tools significantly increased their cryptocurrency holdings, amassing over 825,000 ETH (worth $3 billion as of July 18) and 2.95 million SOL ($531 million) among 14 specialized acquisition entities. See Figure 6. Moreover, many of these companies have committed to staking their ETH and SOL for yields, with some even locking their supplies through DeFi integration, demonstrating a strategic shift from short-term trading to long-term asset allocation. In fact, the preference for ETH and SOL among these tools is partly due to their yield generation potential, and media coverage of stablecoins and tokenized securities further amplifies this potential. According to previous monthly outlook reports, corporate balance sheets will continue to be a primary driver of demand in the cryptocurrency market in the second half of 2025.

Figure 6. Top corporate financial tools for ETH and SOL

Conclusion

While institutional investors have favored BTC for most of this cycle, investors are gradually shifting towards selected altcoins like ETH and SOL, which seem relatively undervalued. Benefiting from the passage of the GENIUS Act in Congress, ETH is increasingly seen as a representative of the thriving real-world asset theme. Nevertheless, both ETH and SOL have garnered interest from institutional investors and support for their beta values relative to other cryptocurrencies. Although Solana has seen a slowdown in memecoin-driven activity, it is demonstrating its capacity for high transaction volumes and exploring new areas. In the short term, technical factors are likely to dominate price trends, including the flow of funds, market sentiment, and other indicators.

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