Despite Challenging Q1 Price Action, On-Chain Metrics Suggest Ethereum (ETH) May Be Undervalued

Despite ETH's poor Q1 price performance and bearish technical signals like the “death cross,” user engagement on Ethereum's layer 2 scaling solutions reached an all-time high of 13.6 million active addresses

A recent analysis by Fidelity Digital Assets suggests that Ethereum (ETH) may be trading below its intrinsic value, despite a challenging first quarter performance.

The firm’s ‘Signals Report’ observed that Ether experienced a significant 45% price decline during Q1, erasing gains made following the US election after reaching a peak near $3,579 in January.

This downturn was technically underscored by a ‘death cross’ formation in March, where the 50-day simple moving average fell substantially below the 200-day SMA, signaling negative market momentum.

The report highlighted the Market Value to Realized Value (MVRV) Z-Score, a metric comparing an asset’s market capitalization to its aggregate cost basis. This indicator fell to -0.18 on March 9, entering a range historically associated with market troughs and suggesting ETH was potentially undervalued relative to its perceived ‘fair value.’

Furthermore, the Net Unrealized Profit/Loss (NUPL) ratio decreased to zero. According to the analysis, this signifies a state of ‘capitulation,’ where the market reaches a neutral point as unrealized profits held by investors are equivalent to unrealized losses.

The report also examined ETH’s realized price (the average price at which all ETH coins last moved on-chain), which stood at approximately $2,020, about 10% higher than the current trading value. This data indicates the average holder is currently facing unrealized losses.

While typically bearish, Fidelity noted that the realized price decreased by only 3% compared to the spot price’s 45% fall. This disparity suggests that selling pressure may have predominantly come from short-term participants, while long-term holders largely retained their positions, potentially forming a more stable price floor.

Contrasting with the price performance, data concerning the Ethereum ecosystem’s usage shows robust growth. Statistics from growthepie.xyz reveals that unique active addresses interacting with Ethereum’s layer 2 scaling solutions reached an unprecedented peak of 13.6 million. This represents a 74% increase in active addresses over the preceding week, highlighting growing adoption and the network’s expanding capacity through layer 2 solutions.

Uniswap’s recently launched layer 2 protocol, Unichain, significantly contributed to this growth, recording over 5.82 million unique weekly active addresses, outpacing established platforms like Base and Arbitrum. This surge in activity collectively bolstered the market share of Ethereum’s layer 2 solutions by nearly 59% within the past week.

Separately, market observers like pseudonymous trader CRG noted a potentially positive technical development. ETH’s price reportedly moved above the 12-hour Ichimoku cloud indicator for the first time since December 2023. Traditionally, price action above a green Ichimoku cloud is interpreted as a sign of potential bullish sentiment and an emerging uptrend.