Ethereum (ETH) is recording the most historically significant undervaluation compared to Bitcoin (BTC). As the ETH/BTC MVRV ratio has fallen to an extremely low level, some interpret the possibility of Ethereum's rebound as an attractive buying opportunity. However, according to Cryptoquant research, a close examination of Ethereum's fundamentals reveals distinct structural weaknesses that could limit a strong recovery.
First, the most prominent change is the increase in Ethereum's supply. Recently, the total ETH supply has exceeded 120.7 million, setting a new all-time high. This means that after the Merge, the 'deflationary asset' narrative has collapsed, returning to an 'net inflationary' structure. Selling pressure due to supply increase makes it difficult to raise ETH prices in the current market with a lack of demand-driving factors.
The background of the deflationary structure's collapse is the Dencun upgrade. Through this upgrade, network fees were significantly lowered, effectively stopping the 'gas fee-based burning' core to EIP-1559, leading to supply increases. This change is seen as having a structural rather than temporary nature, with assessments that the deflationary trend is unlikely to recover in the short term.
Network activity stagnation is also weakening Ethereum's intrinsic value. Since last year, the daily transaction volume and active wallet count on the Ethereum mainnet have remained in a sideways phase without clear growth. While L2 networks are expanding, most of their growth is eroding mainnet usage, actually lowering overall block space demand. This negatively impacts ETH fee profitability and token economic value.
Lastly, investor demand is weakening. In addition to declining staking demand for earning interest on Ethereum, ETF and fund holdings are also showing a downward trend. Total ETH staking volume has retreated from its peak, and the asset allocation by institutional investors is decreasing, indicating a loss of confidence not just among cryptocurrency-native investors but also in traditional financial markets.
Thus, despite prices remaining at a larger discount compared to Bitcoin, Ethereum's macro structure still makes a short-term rebound challenging. Market participants need to pay attention to potential changes in supply dynamics and network demand.
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