The ratio of Ether to Bitcoin has dropped to a multi-year low, a level that historically indicates ETH price could be undervalued relative to Bitcoin. Despite this signal, market analysts caution that a sustained Ether recovery faces challenges from stagnant network activity and weakening institutional investor interest.
The ETH/BTC ratio, which reached a low of 0.019, has previously served as a bullish indicator for Ether. This level suggests Ether may be underpriced when measured against Bitcoin's performance. However, the current market environment presents hurdles that may temper the historical pattern.
Data shows Ethereum’s onchain activity has not seen substantial growth in transaction volume or active users since 2021. This stagnation is partly attributed to increased user and developer focus on Layer 2 networks like Arbitrum and Base, which handle transactions off the main Ethereum blockchain.
The shift to Layer 2s has also impacted Ethereum’s fee burning mechanism, designed to reduce Ether supply following EIP-1559. After the Dencun upgrade in March 2024, base layer gas fees decreased significantly, resulting in reduced burn rates. CryptoQuant noted that this drop in fees burned directly ties to an increase in Ether's total supply, affecting its deflationary characteristic.
Institutional demand for Ether also appears to be waning. Staked Ether holdings have decreased from a high in November 2024, and the amount of Ether held in ETFs and investment products has fallen since February. CryptoQuant reported that reduced confidence from both crypto-native and traditional investors is evident in staking metrics and fund flows.
Recent market movements have seen Ether leading weekly gains among some top cryptocurrencies, outperforming Bitcoin in the last seven days. This gain occurred as Bitcoin flirted with the $100,000 level following positive macroeconomic sentiment influenced by U.S.-China trade discussions and the Federal Reserve's decision to hold interest rates steady.
Despite the recent weekly uptick, Ether remains substantially below its previous high points and March lows. The ETH/BTC chart specifically sits near a five-year low. Data indicates that many Ethereum wallet addresses currently hold Ether at a loss.
Some analysts point to technical factors and market sentiment, along with accumulation by large holders known as "smart money," as drivers for Ether's recent price movement. Nansen Research Analyst Nicolai Sondergaard suggested that technical charts signal Ether is ready for a breakout and noted that data showed firms accumulating ETH.
Sondergaard stated that while the Pectra upgrade is viewed positively by some, he does not foresee it transforming Ethereum immediately, considering it a long-term process. He added, “I think lots of people still see ETH as somewhat cheap, and some charts have been going around, showing that ETH is ready for a breakout.”
