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Ethereum Reportedly 27% Undervalued as ETH Price Drops to 14-Month Low Against Bitcoin

Published September 20, 2023 11:09 AM
Teuta Franjkovic
Published September 20, 2023 11:09 AM

Key Takeaways

  • Ethereum drops to a 14-month low versus Bitcoin.
  • Whales and Vitalik Buterin send $60 million worth of ETH to exchanges.
  • The ETH/BTC ratio has recently decreased, continuing a pattern that started more than a year ago.
  • New on-chain study shows that Ether (ETH) is currently trading 27% below its value.

As major token holders, like Ethereum co-founder Vitalik Buterin, shifted their holdings to cryptocurrency exchanges, presumably as a prelude to selling, the Ether-to-Bitcoin ratio fell to a 14-month low.

According to TradingView statistics , ETH-BTC fell as close to 0.0602 on Wednesday, its lowest value since July.
The second-largest cryptocurrency by market capitalization had a recent price movement that continued a trend that started in September 2022 and supported some gloomy analyst predictions.

Popular crypto analyst and founder of IntoTheCryptoverse, Benjamin Cowen, in an X post that there may be a breakdown in the value of ETH relative to BTC. 

 

Ethereum Whales On the Move

The most recent price drop happened when some well-known investors, or “whales,” recently deposited a total of $60 million ETH to cryptocurrency exchanges, setting up fears about additional price drops.

Market watchers closely monitor whale on-chain moves, as they’re seen as informed and influential. Deposits on an exchange signal potential selling, while withdrawals suggest accumulation.

The most recent move was made by Ethereum co-founder Vitalik Buterin who sent 300 ETH, or about $493,000, to Kraken, according to blockchain statistics compiled by security company PeckShield. Despite the deposit’s modest size, it sparked curiosity among cryptocurrency observers due to Buterin’s prominence for Ethereum.

Another significant investor recently made  a total of 30,000 ETH deposits to the cryptocurrency exchanges Binance, OKX, and KuCoin, amounting to around $50 million, according to Lookonchain.

Lookonchain also noted  that 6,000 ETH, or slightly under $10 million, were deposited to Kraken on Monday by a cryptocurrency wallet that had purchased tokens from Ethereum’s initial coin offering (ICO) nine years prior.

Ethereum Undervalued at $275 Billion Market Cap

According to a recent analysis  using a new version of Metcalfe’s Law, the network value of Ethereum is north of $275 billion.

In its most recent analysis, RxR, a partnership between Re7 Capital and Republic Crypto, estimated  that ETH is fairly valued at $275 billion. If some important elements are taken into account holistically, the analysis claims that the network is currently selling 27% below fair value.

The study used a new Metcalfe-centric model to reach its conclusion and pointed out that current models do not account for scale dynamics. RxR’s models rely on data from the layer 2 networks of Ethereum, unlike conventional models that prioritise the quantity of active users on the network’s mainnet.

Metcalfe’s rule posits that a network’s financial worth precisely equals the square of its connected user count. However, with layer 2 activities incorporated into the model, it yields new findings.

Lewis Harland, an RxR analyst, explained  that the “Ethereum’s network valuation tracks the updated ML index better when the active user base of Ethereum’s scaling networks is factored into the model than when omitted.”

The research analyst stated that integrating L2 activities made long-term estimates more accurate. The experts emphasized that overlooking L2 and off-chain activity might create a misleading impression of the Ethereum network being overvalued.

With a market capitalization of $199 billion and a price of $1,655, Ethereum is currently displaying signs of a rally. Contrary to common belief, the market has not yet “priced in” the levels of network adoption for Ethereum, according to RxR’s blended model.

Harland stated that Ethereum’s user growth as an application platform will likely surpass that of simple value-transfer networks over time, implying higher relative valuations according to Metcalfe’s law.

The Blooming L2 Ecosystem of Ethereum

The L2 area of Ethereum has seen a flurry of activity as numerous projects test out creative solutions to the network’s scaling problems. With their innovative products, Arbitrum and Optimism are pushing the limits of Ethereum’s scaling, and Coinbase’s BASE is seeing extremely high adoption rates.

Given the reliance on rollups and other cutting-edge scaling techniques, aggregate total value locked (TVL) rose over $10 billion with over 30 L2 networks in use. Experts praised the increase in L2 activity for preventing single points of failure and significantly easing congestion.

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