Ethereum Undervalued by 10% Despite 45% Q1 Decline, Fidelity Says

Fidelity Digital Assets has released a report suggesting that Ethereum's recent price decline may indicate that the cryptocurrency is currently undervalued. The report highlights several on-chain metrics that support this assertion, including the MVRV Z-Score and the Net Unrealized Profit/Loss (NUPL) ratio. The MVRV Z-Score, which compares market value to realized value, dropped to -0.18 on March 9, entering the "undervalued" zone. Historically, such levels have marked market bottoms, indicating that Ether was looking cheap compared to its "fair value." The NUPL ratio also fell to 0, indicating "capitulation," where unrealized profits equal losses, suggesting a neutral spot for holders.

Despite Ethereum's 45% decline in Q1, wiping out its post-US election gains, Fidelity noted that the short-term pain may swing in the altcoin’s favor. The firm pointed out that ETH’s realized price, averaging $2,020, sits 10% above its current value, showing holders face unrealized losses. However, a minor 3% drop in realized price versus a 45% decline suggests short-term holders sold off, while long-term holders held firm, possibly stabilizing the base price. Fidelity also cited Ethereum’s market cap ratio to Bitcoin at 0.13, sitting at mid-2020 levels, and in a decline for 30 months.

Ethereum's ecosystem engagement has also reached new highs, with the number of unique addresses interacting with one or two layer 2 networks in the Ethereum ecosystem reaching a new all-time high of 13.6 million active addresses. The rate of active addresses is up 74% over the past week, implying the network’s scalability prowess and growing adoption. Unichain, a new layer-2 protocol by Uniswap, led the charge with over 5.82 million weekly active addresses, surpassing Base and Arbitrum. The collective increase in active addresses improved Ethereum’s layer-2 dominance by 58.74% in the past seven days.

According to the report, the BTC/ETH market cap ratio is at mid-2020 levels, which could suggest that Ethereum is currently undervalued compared to Bitcoin. The report also notes that Ethereum's layer-2 active addresses hit new highs at 13.6 million, indicating growing adoption and engagement with the Ethereum ecosystem. This could be a positive sign for the future of Ethereum, as increased adoption and engagement could lead to increased demand and price appreciation.

In conclusion, Fidelity's report suggests that Ethereum's recent price decline may be an opportunity for investors, as several on-chain metrics indicate that the cryptocurrency is currently undervalued. The report also highlights the growing adoption and engagement with the Ethereum ecosystem, which could be a positive sign for the future of the cryptocurrency. However, it is important to note that investing in cryptocurrencies involves risk, and investors should conduct their own research before making any investment decisions.