Ethereum Watch

• On-chain data showed that ETH was undervalued at press time.
• Ethereum’s application in traditional sectors could drive up demand for ETH.

Predicting how much one would make from investing in cryptocurrencies is a Herculean task. While some have been successful in the venture, the volatility of the market, macroeconomic factors, and sometimes manipulation have put some experts out of business.

Read Ethereum’s [ETH] Price Prediction 2023-2024

For Ethereum [ETH], it has been a long ride since 2014. Those who got in early and held for some years surely have their stars to thank for betting on the altcoin. According to CoinMarketCap, ETH’s all-time performance was a staggering 58,014% increase.

Closer to the green than red

But after almost hitting $5,000 in 2021, the altcoin was back below $2,000. Now, it has a 66.47% drawdown from its All-Time High (ATH). Despite the decline, many market players believe that ETH is a cryptocurrency to keep an eye on for the future.

This is because several opinions have tried to explain how undervalued the altcoin was. 

However, being undervalued can be subjective. For some, you only have to consider historical data. For others, one needs to be on the lookout for major development. In Ethereum’s case, it seems like a combination of all.

So, this article will aim to assess if ETH could be profitable using on-chain data, and development that impact the altcoin price.

A look at the Market Value to Realized Value (MVRV) Z-Score seems like a great metric to begin with. The MVRV Z-Score compares the market value to realized value to evaluate whether an asset is overvalued or undervalued relative to its “fair value.”

Typically, a significantly higher market value than the realized value signals a market top (red area). Conversely, a significantly lower market value than the realized value has often indicated market bottoms (green area).

According to Glassnode, ETH’s MVRV Z-Score was 0.36. This value was very close to the green zone and far away from the red region. A simple interpretation of this state meant that ETH was undervalued at press time.

Demand to push up the price?

Interestingly, this was also the conclusion Fidelity Investments made in its 30 August research. Titled “Ethereum Investment Thesis,” the financial planning firm provided an in-depth evaluation of the Ethereum blockchain. It also assessed the blockchain’s connection with its token ETH.

Fidelity admitted that Ethereum’s fee volatility was a stumbling block to its adoption and may not supersede Bitcoin [BTC] as a monetary tool. However, the report did not fail to mention that ETH’s potential as a yield-generating asset should not be questioned, noting that Ethereum’s smart contract feature could help increase its demand in the long term.

Fidelity explained, 

“Mainstream applications being used on top of Ethereum would, by default, lead to demand for ether, which is why this longer-term trend could be one of the most compelling cases for ether as an aspiring alternative money.”

The firm also used the ability to purchase treasuries, bonds, and money market funds on the Ethereum blockchain as reasons why ETH’s demand could surge in the future.  As a store of value, Fidelity noted that ETH’s issuance reduction has made it a scarce asset, and one to significantly increase.

Furthermore, the report considered the stock-to-flow ratio and compared it with Bitcoin. The stock-to-flow ratio compares the existing amount of a cryptocurrency to the flow of a new amount mined within a specific year.

As of July, Ethereum’s stock-to-flow ratio was higher than Bitcoin’s. This means that ETH could prove to be a better store of value than the king coin going forward.

ETH: Hit $2,000 first, then go parabolic

For ETH’s short-term projection, AMBCrypto spoke with Gracy Chen, Managing Director at Bitget. Chen agreed that ETH has a higher value proposition than BTC in the long term. 

She admitted that Bitcoin’s current dominance in the market makes ETH weak, but also mentioned some positives around staking liquidity flow and deflation. As for ETH’s potential price in September,

Chen said,

“If BTC successfully breaks through $29,000, it’s anticipated that a surge in altcoin market activity will occur, and ETH might attempt to surpass its previous resistance level of around $2,141.”

Meanwhile, Fidelity also considered Ethereum’s burn mechanism’s connection to the ETH value. Using the Shanghai/Capella upgrade as a reference, the firm noted that ETH’s unstable supply could prove to be an obstacle. And at the same time, it could be an advantage. 

How much are 1,10,100 ETHs worth today?

As a pro, the report noted that the narrative around ETH being an ultrasound money could pick up steam, improve the demand, and in turn the price. But this would require the supply to be consistent, like other assets acting as a store of value.

Apart from these mentioned above, Fidelity concluded Ethereum’s role in various protocol upgrades and scaling solutions also gives it an edge to yield good gains in the future. However, market participants would need to watch out for consistency in this regard.

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