Key Takeaways:The ETH/BTC ratio has dropped to 0.019, marking a multi-year low that historically signals ETH upside potential.Ethereum's network activity has stagnated since 2021, with no meaningful growth in transactions or user base.Institutional demand for ETH is weakening, with a decline in staked ETH and ETF holdings.The Dencun upgrade lowered Ethereum transaction fees, reducing burn rates and weakening ETH’s supply-deflation mechanism.ETH/BTC Ratio Hits “Extremely Undervalued” Zone, But Caution RemainsEthereum (ETH) may be entering a period of historical undervaluation relative to Bitcoin (BTC), according to new on-chain data from CryptoQuant. The ETH/BTC ratio, which peaked above 0.08 in late 2021, has now fallen to 0.019, its lowest level in years — a zone that in the past has preceded strong ETH price rebounds.This drop in the ratio signals that ETH may be underpriced relative to BTC, and historically such levels have triggered periods of ETH outperformance. However, analysts caution that the bullish signal may not play out as strongly in 2025, due to worsening fundamentals on Ethereum’s base layer and weakening investor interest.Network Usage and Value Accrual Mechanisms Show WeaknessDespite the promising valuation metrics, Ethereum’s onchain activity remains flat, with little growth in transaction volumes or active addresses since 2021. This stagnation has been worsened by the shift of user and developer activity to Layer 2 networks like Arbitrum and Base, which offer cheaper and faster transactions but divert fees and activity away from Ethereum’s mainnet.One of the key impacts of this trend has been a sharp drop in Ethereum’s fee burn — 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, weakening the asset’s deflationary narrative.Institutional Appetite for ETH SlipsAnother 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 GapWhile 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.”Outlook: Undervalued, but Not UnchallengedDespite ETH’s historically low valuation relative to BTC, analysts warn that a rebound will likely depend on stronger catalysts — including renewed DApp activity, higher Layer 1 fees, and improved institutional engagement.Unless Ethereum’s base layer metrics recover or staking and ETF flows reverse, the undervaluation signal may take longer than usual to materialize into price action.
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