Ethereum (ETH) recently dipped into valuation levels not seen since 2019 before bouncing back with an impressive short-term rally. Despite this recovery, ETH continues to trade at a significant discount compared to Bitcoin (BTC), raising questions among investors: Is this a buy signal, or is something fundamentally broken?
According to a new CryptoQuant (CQ) report, ETH’s undervaluation—particularly the ETH/BTC MVRV ratio—has entered historically “extremely undervalued” territory. In past cycles, similar levels triggered strong rebounds. However, CQ warns that this time may be different.
A Discount That Comes With Risks
CryptoQuant’s analysis highlights a key shift: although ETH appears undervalued based on past metrics, the current environment introduces headwinds that weren’t present during previous recoveries.
1. The Deflationary Narrative Is Breaking Down
One of Ethereum’s strongest bullish narratives—its deflationary supply—has weakened. After the Dencun upgrade in March 2024 significantly reduced gas fees, the network’s ETH burn rate collapsed. As a result, Ethereum’s total supply has grown to an all-time high of 120.7 million, reintroducing inflationary pressure.
2. On-Chain Activity Has Stalled
Despite the growth of Layer 2 (L2) scaling solutions, Ethereum’s base-layer usage is weakening. Key metrics like transaction counts and active addresses have dropped sharply since 2021. While L2s help scale the network, they also divert demand from the Ethereum mainnet—reducing ETH’s utility and value capture at the base layer.
3. Institutional Confidence Is Slipping
ETH’s staking participation is also declining. The total amount of staked ETH has dropped from 35 million in November 2024 to about 34.4 million. Additionally, ETF holdings have shed roughly 400,000 ETH since February 2025, signaling waning institutional interest—especially in contrast to Bitcoin, which continues to enjoy strong inflows driven by capped supply and ETF momentum.
A Bounce—But Is It Sustainable?
Even with these concerns, Ethereum surged to around $2,400 last Friday, posting a 30% weekly gain—far outpacing Bitcoin’s 7.5% climb and the overall crypto market’s 8% rally. The catalyst? The successful rollout of the Pectra upgrade on May 7, which introduced key improvements like account abstraction and staking enhancements through 11 bundled EIPs.
However, despite this technical progress, CryptoQuant cautions that such upgrades may not be enough to offset the deeper fundamental issues ETH is facing.
ETH’s Undervaluation Explained: A Trap, Not a Signal?
Historically, deep ETH discounts relative to BTC were reliable buying opportunities. But this time, analysts argue that weakening demand, increasing inflation, and declining institutional interest may prevent a similar rebound.
As CryptoQuant concludes, “While ETH appears undervalued on a historical basis, its recovery path may be more complex and slower than in prior cycles.” In other words, undervaluation alone may no longer be a green light for investors.
