ETH/BTC Ratio Hits "Extremely Undervalued" Zone, But Caution Remains

The ETH/BTC ratio has dropped to 0.019, marking a multi-year low that historically signals ETH upside potential.

Key Takeaways:

- The ETH/BTC ratio has hit an extremely undervalued zone at 0.019, a level that historically signals significant upside potential for ETH.

- However, Ethereum's network activity has stagnated since 2021, with no meaningful growth in transactions or the user base.

- Institutional demand for ETH is also weakening, evident in the decline of staked ETH and ETF holdings.

- The Dencun upgrade lowered Ethereum transaction fees, reducing burn rates and weakening ETH's supply-deflation mechanism.

After a remarkable rally that saw Bitcoin (BTC) nearly breach the $100,000 mark and Ethereum (ETH) outperform most major cryptocurrencies, both assets have encountered resistance at key technical levels. This has sparked a debate among analysts about the potential for further gains in the current market conditions.

As Bitcoin hovers around the $99,000 mark and faces resistance at the 2023 high of $105,000, analysts at Benzinga remain cautiously optimistic. They believe that a decisive break above $105,000 could open the door for a rally to $120,000. However, they advise traders to use caution and factor in the broader macroeconomic environment.

On the other hand, Ethereum is encountering resistance at the $5,000 psychological level, which could be pivotal for the next move in the world's second-largest cryptocurrency. A successful breach of this level could pave the way for a continuation of the bull market, potentially targeting the all-time high of around $5,300.

In the broader cryptocurrency market, the total market capitalization has remained relatively stable, hovering around $3.5 trillion, while Bitcoin's dominance slipped to 69.6%.

ETH/BTC Ratio Reaches Extremely Undervalued Zone

According to on-chain data from CryptoQuant, the ETH/BTC ratio has dropped to an extremely undervalued zone.

This ratio, which measures the value of ETH in terms of BTC, is currently trading at 0.019, its lowest level in years.

Typically, when the ratio falls to such low levels, it signals that ETH is becoming undervalued relative to BTC. Historically, when this happens, it tends to be followed by a period of strong ETH price gains as the ratio corrects.

However, analysts caution that the bullish signal may not play out as strongly in 2025. This is due to the worsening fundamentals on Ethereum's base layer and the weakening investor interest, which are both critical factors that could hamper ETH's ability to recover.

Network Usage and Value Accrual Mechanisms Show Weakness

Despite the promising valuation metrics, onchain activity on Ethereum remains flat. There has been little to no growth in transaction volumes or active addresses since 2021.

This lack of growth is surprising considering the narrative of DeFi and Web3 driving demand for blockchain technology. However, user and developer activity has shifted to Layer 2 networks like Arbitrum and Base. These networks offer cheaper and faster transactions but divert fees and activity away from Ethereum's mainnet.

One of the key impacts of this trend is a sharp drop in Ethereum's fee burn. This is the mechanism that made ETH deflationary after EIP-1559. Following the Dencun upgrade in March 2024, which significantly reduced base layer gas fees, burn rates have dropped to near-zero levels.

"The increase in ether total supply is directly tied to the sharp decline in fees burned," CryptoQuant reported, further weakening the asset's deflationary narrative.

Another headwind for Ethereum is a noticeable decline in institutional demand. According to CryptoQuant:

- Staked ETH has decreased from its all-time high of 35.02 million ETH in November 2024 to 34.4 million ETH as of May 2025.

- ETH balances held in ETFs and investment products have fallen by around 400,000 ETH since February, reflecting reduced institutional exposure.

This pullback suggests that ETH is currently losing ground as a yield-bearing or reserve asset in institutional portfolios, with capital possibly rotating to other chains or into more liquid positions.

Bitcoin's Diverging Strength Highlights the Gap

While ETH fundamentals face pressure, Bitcoin continues to rally, nearly reaching the $100,000 mark amid broader macroeconomic uncertainty and a flight to safe-haven assets. The divergence underscores a shifting preference toward BTC among institutional and retail investors alike.

"Investor demand for ETH as a yield and institutional asset is weakening," CryptoQuant stated. "Reduced confidence from crypto-native participants and traditional investors is becoming visible across both staking metrics and fund inflows."

Despite ETH's historically low valuation relative to BTC, analysts believe that a rebound will likely depend on stronger catalysts, such as renewed DApp activity, higher Layer