Ether-Bitcoin Ratio Hits Bullish Level, But Caution Ahead

Ether-Bitcoin Ratio Reaches Historically Bullish Zone, but Traders Urged to Proceed With Caution

The ether-bitcoin (ETH/BTC) ratio has recently dipped to what is being referred to as an “extremely undervalued” zone, signaling a historically bullish trend. However, traders looking to capitalize on a potential sharp recovery in ether (ETH) may want to exercise caution.

Data from on-chain data firm CryptoQuant shows that the ETH/BTC market value to realized value (MVRV) ratio has plummeted to multi-year lows, reaching levels that have previously indicated periods of ETH outperformance against BTC. The ratio peaked above 0.08 in late 2021 but has since dropped to 0.019, down over 75% from its record highs.

MVRV is a metric that compares a token’s current market cap to its realized capitalization, reflecting the average cost basis of all coins in circulation based on the price they were last moved on the blockchain.

However, despite the bullish signal from the ratio, the current market environment may not be as straightforward. Network activity on the Ethereum blockchain remains stagnant, with core usage metrics like transaction count and active addresses showing little momentum since the last bull run, according to CryptoQuant.

One factor contributing to the decline in ETH’s value is the increase in total supply, which is directly linked to a sharp drop in fees burned. This decrease in burn activity is a result of the DenCun upgrade implemented in March 2024, which significantly reduces transaction fees across the network.

Additionally, the growth of Layer 2 solutions such as Arbitrum and Base has diverted activity away from the mainnet, reducing base layer fees and weakening the value accrual narrative of ETH.

Institutional demand for ETH is also waning, as evidenced by declining staked ETH and lower balances held by ETFs and other investment vehicles. The total value staked has fallen from its all-time high, while fund holdings continue to trend downward, indicating reduced confidence from both crypto-native participants and traditional investors.

The decline in ETH staked from its peak in November 2024 to around 34.4 million ETH suggests that investors may be reallocating capital or seeking more liquid positions in response to the challenging market environment. Additionally, ETH balances in investment products have decreased by about 400,000 ETH since early February, highlighting a broader decline in institutional demand.

Despite the challenges facing ETH, bitcoin continues to rise, touching nearly $100,000 on Thursday as its appeal as a safe-haven asset grows among investors. Traders and investors in the cryptocurrency space are advised to closely monitor these market dynamics and exercise caution when making trading decisions in the current environment. Bullish group, a leading blockchain and digital asset company, is majority owned by Block.one. Both companies have interests in a variety of blockchain and digital asset businesses and hold significant amounts of digital assets, including bitcoin. CoinDesk, an independent subsidiary of Bullish group, operates with journalistic integrity and is forming an editorial committee chaired by a former editor-in-chief of The Wall Street Journal.

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