The ether-bitcoin (ETH/BTC) ratio has recently dropped to an ‘extremely undervalued’ zone, raising questions and hopes among traders. This movement historically signals a bullish trend for Ethereum (ETH), yet traders considering a significant recovery for ETH may want to proceed with caution.
Data from on-chain analytics firm CryptoQuant illustrates that the ETH/BTC Market Value to Realized Value (MVRV) ratio has reached multi-year lows, historically indicating periods of ETH outperformance against BTC. Notably, the ETH/BTC ratio peaked over 0.08 in late 2021 but now sits at approximately 0.019, marking a decline of more than 75% from its record highs.
The MVRV metric offers insight into a token’s current market cap compared to its realized cap—the value of each coin at the last blockchain transaction. This reflects the average cost basis of all coins in circulation, providing valuable insights into market dynamics.
However, the current situation may not be as straightforward as it appears. According to CryptoQuant, network activity for Ethereum has remained flat, with core usage metrics—such as transaction counts and active addresses—showing little momentum since the last bull run.
The recent upturn in ether’s total supply can be attributed directly to a decrease in fees burned, as illustrated in the accompanying chart. The Dencun upgrade, implemented in March 2024, has significantly reduced transaction fees within the network, resulting in burn activity approaching zero.
Moreover, Ethereum’s network activity has not experienced significant growth over the past three years, with metrics like transaction volume and active addresses suggesting stagnation, highlighting a lack of meaningful expansion in on-chain activity.
The rise of Layer 2 solutions, such as Arbitrum and Base, has further impacted mainnet activity. This competitive dynamic diminishes the fees associated with the base layer and challenges ETH’s value accrual narrative.
Institutional demand is also experiencing a cooling trend. As noted by CryptoQuant, the interest in ETH as both a yield and institutional asset is waning, evidenced by declining staked ETH and reduced balances held by ETFs and other investment vehicles. The total amount of ETH staked has decreased from an all-time high of 35.02 million ETH in November 2024 to roughly 34.4 million ETH, suggesting shifts in capital allocation or a preference for more liquid positions amidst a challenging market landscape.
Furthermore, ETH balances in investment products have dropped by approximately 400,000 ETH since early February, underscoring a broader decline in institutional demand.
On the other hand, Bitcoin has continued its rise despite a fluctuating macroeconomic environment, recently touching nearly $100,000. This uptick highlights its growing allure as a safe-haven asset for investors.
In summary, while the current ETH/BTC ratio presents historically bullish signals, various underlying factors may warrant a more cautious outlook. Traders would be wise to consider the full market context and the nuances surrounding Ethereum’s continued evolution.
