Last year, the Ethereum (ETH) network was slowed down by Initial Coin Offering boom hangover, delayed protocol upgrades, and the general digital currency winter. Nevertheless, a lot of fundamental indicators, which should theoretically be indicative of positive price traction, are pointing to undervaluation.
For instance, the value of Ethereum (ETH) is down by more than 90 percent from its all-time high, whereas transaction count has plunged by 52%, active addresses are down by 73%, and gas consumption is down by 7%. Interestingly, the volume of transactions on the network has dropped by 99.5% from its all-time high, which offers a sort of foreshadowing.
Fundamental Metrics Correlation Analysis
This analysis was conducted by Christopher Brookins – the founder of Pugilist Venture, a quantitative digital currency fund founded out of Carnegie Mellon. Brookins analyzed some fundamental metrics and created some of his own, a simple correlation matrix between the earlier mentioned indicators to change in the value of Ethereum (ETH) is quite revealing.
According to the analysis, there is a dichotomy between practice and theory of what basic demand indicators should be driving price. Presently, according to the correlation matrix, it seems quality (median and average transaction value) instead of quantity (active addresses, gas, transaction count, and more) is pioneering the price movements of Ethereum (ETH).
The metrics measuring the balance or ratio between quantity and quality, example median transaction volume, average transaction volume, and active addresses transaction volume, all have positive correlations with the value of Ethereum (ETH). Hence, it seems that an increase in the transaction volume in the network in relation to quantity metrics, preferably for the use of basic decentralized apps solving real-life issues such as decentralized finance, will be the key to finding a stable price bottom.
Transaction Volume to Active Addresses Ratio (TAAR) of the Network
Transaction volume to active addresses ratio is a metric that was introduced some time ago, and it pointed out its usage as an equilibrium gauge for BTC by measuring the change between quantity vs. quality fundamentals. Nevertheless, unlike Bitcoin (BTC) TAAR, it seems the network dynamics of Ethereum don’t match that of BTC. This is not surprising due to the fact that they are two separate digital currencies solving two different issues.
But, rather than TAAR serving as an equilibrium gauge for Ethereum, it might act as a directional price gauge instead. This means that if the 1k level of TAAR holds, then ether will likely bottom out around the $100 level. Nevertheless, if not, and TAAR falls back to the red line (500 level), black line (300 level), or even 100 level, then the value of Ethereum (ETH) is likely to decline further.
Active Addresses to Average Daily Value (AAAT)
The active addresses to average daily transaction value visualize the “tug of war” between quality and quantity indicators in the network of Ethereum. Again, negative correlation to price and quantity are associated. The correlation between AAAT and Ethereum (ETH) is -0.09. This means that when quantity (active addresses) see a faster growth rate than quality (average transaction value), the value of ether reacts negatively.
Ethereum (ETH) Price Today – ETH / USD [ccpw id=”10762″]
At the time of writing, Ethereum (ETH) is changing hands at $123 after an increase of about 2 percent over the past twenty-four hours. The current market cap of the digital currency is $123.03 billion and its trading volume over the past twenty-four hours is $2.3 billion.