A new Fidelity report indicates Ethereum may be undervalued, with key metrics showing potential for growth despite a 45% decline in price during Q1 2023. The MVRV Z-Score dropped to -0.18, signalling “undervalued” status. Meanwhile, layer-2 engagement has surged, with active addresses reaching 13.6 million, demonstrating strong adoption and scalability.
Fidelity Digital Assets has released a new report suggesting that Ethereum may be undervalued, pointing to multiple onchain metrics that imply the cryptocurrency is currently trading at a discount. Notably, the BTC/ETH market cap ratio has returned to levels seen in mid-2020, raising questions about ETH’s current market position and potential for growth.
The report highlights Ethereum’s challenging performance in the first quarter of 2023, where the price of Ether (ETH) plummeted by 45%, wiping out gains achieved after the US elections. It peaked at $3,579 in January but faced a significant downturn. A technical indicator, known as a death cross, was registered in March when the 50-day simple moving average dropped 21% below the 200-day counterpart, signifying bearish momentum.
Despite this bearish turn, Fidelity remains cautiously optimistic, suggesting that the short-term pain for Ether might turn into an opportunity. The MVRV Z-Score, a metric comparing market value against realised values, recently fell to -0.18, which is typically indicative of undervaluation. Historically, readings like this have often suggested market bottoms, hinting that Ether could be considered “cheap” in terms of its fair value.
Another key metric, the Net Unrealized Profit/Loss (NUPL) ratio, reached zero, a level interpreted as “capitulation,” where unrealized profits become losses. This reads as a neutral status for holders of ETH. The realised price of ETH, averaging $2,020, remains about 10% above the current trading value, reflecting unrealized losses for holders. While this trend is bearish, Fidelity noted that the substantial disparity between the small 3% drop in realised price compared to the 45% price decline indicates that short-term sellers have exited the market, while long-term holders are maintaining their positions, which may help stabilize prices.
It’s worth noting, however, that even in 2022, Ethereum’s price dipped below the realised price and continued to drop further before recovery. This serves as a reminder of the market’s volatility.
Fidelity also pointed out that Ethereum’s market cap ratio to Bitcoin now stands at 0.13, a level last seen in mid-2020. This ratio has been on a downward trajectory for 30 consecutive months, raising further questions about its relative market strength.
Engagement within the Ethereum ecosystem is also hitting new heights, as fresh data from growthepie.xyz indicates the count of unique addresses interacting with layer 2 networks has reached an all-time high of 13.6 million. This represents a whopping 74% increase in active addresses over just the past week, signalling strong scalability and adoption of the network.
Unichain, a new layer-2 protocol launched by Uniswap, is leading the charge with over 5.82 million weekly active addresses, eclipsing other networks like Base and Arbitrum. This influx of activity has improved Ethereum’s dominance in the layer-2 sector by an impressive 58.74% in just a week.
Finally, keeping an eye on price indicators, anonymous crypto trader CRG noted that ETH has finally climbed above the 12-hour Ichimoku cloud for the first time since December 2022. This indicator often signals an uptrend when prices exceed the cloud and turns green, suggesting a shift towards bullish sentiment.
This article does not serve as investment advice. Readers are reminded that every investment comes with risks and should do their own thorough research before making any decisions.
