The ether-bitcoin (ETH/BTC) ratio has hit “extremely undervalued” levels, signaling a historically bullish outlook for Ethereum, but caution is advised as several headwinds complicate the picture for traders expecting a swift ETH recovery.
According to CryptoQuant, an on-chain analytics firm, the ETH/BTC market value to realized value (MVRV) ratio has dropped to multi-year lows, indicating that Ethereum is significantly undervalued relative to Bitcoin. Historically, this type of movement has preceded ETH rallies, but the current market dynamics suggest the outlook may not be as straightforward.
The ETH/BTC ratio reached its peak of 0.08 in late 2021 but has since fallen by more than 75%, now sitting at 0.019. The MVRV ratio, which compares a token’s market cap to its realized capitalization (the price at which each coin was last moved on the blockchain), reflects the average cost basis for all coins in circulation. When this ratio drops, it often signals that a token is undervalued, potentially setting the stage for future outperformance.
However, this time the scenario is more complicated. Despite the seemingly favorable ETH/BTC ratio, network activity has remained flat, and critical metrics such as transaction volume and active addresses have shown little growth since Ethereum’s last bull run. CryptoQuant pointed out that this stagnation has persisted for over three years, with little to no upward momentum in Ethereum’s core usage.
The increase in Ethereum’s total supply is also a concern, especially as the amount of ETH burned has significantly decreased. This reduction in burning activity is partly due to the Dencun upgrade in March 2024, which lowered transaction fees across the network. While this upgrade has been beneficial for reducing user costs, it has also weakened the mechanics that once helped reduce the circulating supply of ETH, which in turn could impact its price.
Layer 2 solutions like Arbitrum and Base have seen growth, but their success has come at the expense of Ethereum’s mainnet, shifting activity away from the base layer. This dynamic further dilutes ETH’s value proposition as a store of value and affects its ability to drive growth in the network.
Institutional interest in Ethereum has also cooled. CryptoQuant noted that there’s been a decline in the amount of ETH staked, dropping from its all-time high of 35.02 million ETH in November 2024 to approximately 34.4 million ETH. This suggests that investors are reallocating capital or opting for more liquid positions amid a less favorable market environment.
Additionally, the decrease in ETH held by investment products like ETFs is notable, with around 400,000 ETH exiting these vehicles since early February. This decline in institutional demand further signals waning confidence in Ethereum from both crypto-native participants and traditional investors.
While Ethereum struggles with supply and demand dynamics, Bitcoin continues to outperform, recently nearing the $100,000 mark as it gains traction as a safe-haven asset in the current macroeconomic climate.
