Ethereum (CRYPTO: ETH) has surged 65% over the past month, sharply outperforming other digital assets after a prolonged stretch of underperformance relative to Bitcoin.

What Happened: According to a new report by Bernstein on Wednesday, the rebound is being driven by a convergence of structural and tactical catalysts.

The rally, they argue, is underpinned by three primary trends: renewed focus on blockchain utility via stablecoins, rising institutional interest in Ethereum's Layer 2 ecosystems and a major unwind of bearish hedge fund positioning.

"Stablecoins are bringing back the focus on underlying blockchain networks becoming platform proxies to gain exposure to the growth trend," the report said.

Ethereum currently accounts for 51% of minted stablecoin supply, making it a key infrastructure layer for this segment.

The second catalyst revolves around the Layer 2 chains built on Ethereum.

"Layer 2 chains use ETH for gas fees as underlying currency, thus helping drive distribution and demand for ETH," Bernstein noted, pointing to Base's $85 million in annual sequencer fees and Robinhood's (NASDAQ:HOOD) recent acquisition of WonderFi as indicators of broader adoption.

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This model, Bernstein says, "might become the template for asset managers and institutional users launching their own layer 2 chain on Ethereum."

Lastly, the report highlights a more tactical reason for Ethereum's strength: a repositioning among crypto hedge funds.

"For the last 12-18 months, ETH was the perfect delta-neutral hedge. Crypto hedge funds were long Bitcoin (CRYPTO: BTC), Solana (CRYPTO: SOL) and short ETH," the analysts wrote.

What’s Next: As the narrative now shifts toward blockchain utility and institutional adoption, these shorts are being closed.

The broader implication of Ethereum's rally is also positive for the digital asset ecosystem at large.

"Resurgence of ETH and non-Bitcoin assets is also good for crypto exchanges and broker-dealers, as a broader crypto market rally reinvigorates retail traders," Bernstein said.

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