Is Ethereum Undervalued? Analyst Warns Against Misleading On-Chain Metrics

Ethereum

Ethereum [ETH] adoption via stablecoin and DeFi has been driving the bullish sentiments. Moreover, the on-chain is also in an uptrend which further strengthens its fundamental value. However, analyst and founding partner at Primitive Crypto, Dovey Wan, points out that in reality the demand could be inflated. 

Ironically enough, a lot of the inflated on-chain metrics has to do with ‘Gas.’ Ethereum Gas is the economic measure of the computation required to execute transactions and smart contracts on Ethereum. Lately, the gas usage has been spiking to All-Time Highs. Ryan Sean Adams, a crypto investor and analyst, points the bullish narrative with respect to this. He notes,

There is a strong historical correlation between the price of ETH the asset and the price of Ethereum blocks. Further, it seems we’re in a one of those rare periods where blocks fees are rising faster than ETH price.

bull run in prices
Ryan Sean Adams Points Out the Times When Usage Spikes Leads to Bull Run in Prices (Source)

Stablecoin and DeFi Adoption

Furthermore, the increase in the supply and transactions of USDT (Tether) on Ethereum has been strengthening the sentiments. Adam points that in the last 30 days ‘USDT spent $1.6 million on gas.’ Yesterday, the total number of daily transactions on Ethereum based USDT reached a new All-Time High as well with over 200k transactions.

Nevertheless, according to Dovey Wan, while it is positive for the network, the two demands (Gas vs. ETH) are uncorrelated. She tweeted,

Only settlement demand/collateral demand like MAKER can drive up ETH price, not staking nor gas usages, also gas usages from casino/ponzi (which tends to pay high fees) actually squeeze out legit use cases onchain, drive users elsewhere (like to Tron for stablecoin)

The demand for Ethereum locked in DeFi has been in a downtrend since February,

ethereum defi locked
Etheereum Locked in DeFi (Source)

Ponzi and Inflated Demand

Even Adams pointed out that about 20% of the GAS usage was coming from Ponzi and online Casinos. Nevertheless, Wan does not seem to be bent on the ethics of the transaction than the actual value it adds to the network. The mean value of transfers using Ethereum [ETH] has is at par with (or even slightly lower) than last year,

ethereum price and value transfers
Ethereum Price (line) and Value Transfers (area) (Source: Coinmetrics)

According to her the on-chain transactions for ‘ETH’ or the value locked in DeFi would drive prices, not secondary network usage. She tweets,

Ponzi/casino is NOT a problem, totally fine. but those ponzi/casino are NOT settled in ETH, but mostly stablecoin. so never assume settlement demand always on par with usages

settlement/collateral abstraction is actually a BIG bear case for ETH

Do you think that Ethereum will be able to gain a store of value characteristics with the rising usage? Please share your views with us.