Crypto Assets market plummets, triggering a chain reaction

Since the beginning of August, the Crypto Assets market has been performing poorly. Multiple factors have contributed to this situation, including tense geopolitical circumstances, fluctuations in the Japanese financial market, weak economic data from the United States, and underwhelming performance from technology giants.

On August 5th, as traditional financial markets plummeted, the crypto market also suffered significant losses. In just 24 hours, the total liquidation amount across all exchanges reached $1 billion, with Bitcoin and Ethereum accounting for $350 million and $342 million respectively.

On-chain data shows that the price of Ethereum has plummeted, triggering massive liquidations. Multiple large holders were forced to sell Ethereum to repay loans, including:

• An address settled 6,559 ETH, repaying a 277.9 WBTC loan.
• Another address settled 2,965 ETH, repaying a loan of 7.2 million USDT.
• The third address liquidated 2,771 ETH, repaying a loan of 6.06 million USDC.
• The fourth address settled 2,358 ETH, repaying a loan of 5.17 million USDC.

Data shows that Ethereum plummeted from around $3,300 to below $2,200 within a week, a decline of over 30%. In addition to liquidation pressure, there were reports in the market of a large trading institution selling off a significant amount of Ethereum, exacerbating the downward trend.

According to analysis, since August 3, five major market makers have collectively sold 130,000 Ethereum. One institution sold over 47,000 coins, while another sold over 36,000 coins, ranking the top two. Although the largest sellers are not these two, the latter's selling time was earlier, ahead of other mainstream market makers.

This series of events triggered a chain reaction. The liquidation amount of Ethereum reached 100 million USD within one hour, with a total liquidation amount exceeding 445 million USD in 24 hours. On August 5th, the lending liquidation on decentralized finance platforms surpassed 320 million USD, setting a new high for the year. Among them, the liquidation amount of Ethereum collateral was 216 million USD, and the liquidation amounts of other assets such as wstETH and wBTC were also quite substantial.

As Ethereum dipped to around $2100, network transaction fees surged to 710 gwei. It is noteworthy that if Ethereum continues to fall to $1950, $92.2 million in crypto assets will face liquidation risks; if it drops to $1790, the liquidation scale could expand to $271 million.

After this sharp decline, the market's bullish leverage has significantly decreased, and many short-term investors have exited. Although the market fundamentals have been impacted, it has not completely collapsed. The Crypto Assets fear index has dropped to 26, which is a low since 2023, and the likelihood of continuing to decline sharply in the short term is low.

Analysis of the Prospects for Ethereum Spot ETF

Compared to the performance of Bitcoin spot ETFs, the performance of Ethereum spot ETFs is relatively inferior. Although Bitcoin ETFs experienced a period of net outflows (mainly due to the sell-off of a certain fund), they still maintained a net inflow of about $17.5 billion, which is one of the reasons for Bitcoin's relatively stable price.

In contrast, the Ethereum spot ETF has experienced a net outflow of $511 million due to its launch coinciding with macroeconomic turbulence and a general retreat in risk assets, with its total asset scale also significantly smaller than that of Bitcoin ETFs. Among them, a large fund accounted for the majority of the outflow, exceeding $2.1 billion, while other ETF issuers are in a net inflow state. Considering that this fund still holds nearly $6 billion in Ethereum, further outflows may occur in the coming weeks.

From the perspective of acceptance in traditional markets, there is still a significant gap between Ethereum and Bitcoin. Although the Ethereum spot ETF is currently just a "supporting role" to the Bitcoin ETF, it represents a significant breakthrough for the Crypto Assets industry in terms of regulation, with far-reaching implications in the long run. As institutional investors gain a deeper understanding of Ethereum's fundamentals, it is expected to attract more funds in the future.

The CEO of a payment company stated after the market crash that in the face of global economic fluctuations, attention should be paid to technology, industry development, and application adoption, rather than short-term price fluctuations. He remains optimistic about the encryption industry. Historical data shows that Crypto Assets typically perform poorly in August and September, but often improve after October.

As of August 5, Ethereum's market capitalization is approximately $273.4 billion, ranking 37th among global companies by market value, lower than Coca-Cola and Bank of America, and even less than the cash reserves of a certain well-known investment firm after reducing its holdings in Apple stocks ($276.9 billion).

As a leader in the application-oriented public chain within the Crypto Assets ecosystem, Ethereum has immense potential in terms of technological application and innovation. The recent market cap decline may have created better positioning opportunities for institutional investors. In addition, the market expects that the Federal Reserve may initiate interest rate cuts in September. The rate cuts are expected to offset the impact of the strengthening yen, and the increased market liquidity at that time may bring more capital inflow to the Ethereum spot ETF.