The Crypto Assets market has experienced a significant fall, triggering a chain reaction.

Recently, the Crypto Assets market has shown lackluster performance, with multiple factors contributing to this situation. Geopolitical tensions, interest rate hikes in Japan leading to stock market sell-offs, weak employment data in the United States, and concerns about economic recession have all negatively impacted the market. In addition, earnings reports from some tech and retail giants falling short of expectations have also triggered massive sell-offs in tech stocks.

On August 5th, as the traditional financial market experienced a significant fall, the crypto market also faced a sharp drop. In total, $1 billion was liquidated across exchanges within 24 hours, with Bitcoin accounting for $350 million and Ethereum for $342 million.

On-chain analysis shows that the significant fall in Ethereum prices has triggered a wave of on-chain leverage liquidations among large holders, further exacerbating the downtrend. Several large holders were forced to sell their Ethereum to repay loans. For example, one address liquidated 6,559 Ethereum to repay a loan of 277.9 wrapped Bitcoin; another address liquidated 2,965 Ethereum to repay a loan of 7.2 million Tether.

Data shows that Ethereum plummeted from around $3,300 to below $2,200 in the past week, with a decline of over 30%. In addition to the overall market downturn, increased leverage liquidation pressure and news of certain institutions selling large amounts of Ethereum also contributed to the crash.

A CEO of a decentralized platform believes that "the fall of Ethereum is related to certain trading institutions, possibly due to margin calls in traditional markets, needing to obtain liquidity over the weekend, or choosing to exit the crypto assets business for regulatory reasons."

Research reports indicate that since August 3, the five major market makers have collectively sold 130,000 Ethereum. One institution sold more than 47,000 Ethereum, while another sold more than 36,000 Ethereum. Although the number of Ethereum sold by institutions is the highest, some institutions' selling actions are ahead of other mainstream market makers.

The chain reaction of these events led to a liquidation amount of up to 100 million USD for Ethereum within 1 hour, with a total liquidation amount exceeding 445 million USD in 24 hours. The liquidation of loans on DeFi platforms also reached a new high this year, amounting to 320 million USD, of which the liquidation amount of Ethereum collateral was 216 million USD.

As Ethereum fell to a low of nearly 2100 dollars, the network's transaction fees also soared to 710 gwei. It is worth noting that if Ethereum continues to fall, more Crypto Assets in DeFi protocols will face liquidation risks.

After this significant fall, the long leverage in the crypto market has been massively cleared, and a large number of short-term spot holders have exited the market. Although the market fundamentals have been shaken, they have not collapsed. The crypto market fear and greed index has fallen to 26 (fear state), which is at a relatively low level since 2023, and the space for further significant declines in the short term may be limited.

The Prospects of Ethereum Spot ETF

According to the data from Bitcoin spot ETFs, despite a period of net outflows, the overall cumulative net inflow still amounts to around $17.5 billion, which is one of the reasons for the relatively strong price of Bitcoin.

In contrast, the performance of the Ethereum spot ETF has been less than satisfactory. Due to its launch coinciding with a turbulent macroeconomic environment and a significant decline in risk markets, it has currently seen a cumulative net outflow of $511 million, with its total asset size also being smaller compared to the Bitcoin ETF. Among them, a certain institution's ETF accounted for the majority of the outflow, while other ETF issuers are in a net inflow state.

From the perspective of acceptance in traditional markets, Ethereum and Bitcoin still have a significant gap. Although Ethereum is currently just a "supporting role" in the spot ETF market, it marks a significant progress in regulation for the Crypto Assets industry, which is of great importance in the long run. As traditional institutions gain a deeper understanding of Ethereum's fundamentals, more funds may flow in the future.

After the market fall, the CEO of a payment company stated, "In the face of global macro fluctuations, we should focus on technology, industry, and adoption rather than price, and we still remain optimistic about the Crypto Assets industry." Historically, the Crypto Assets industry tends to perform poorly in August and September, but the trend after October is generally more optimistic.

After the fall, the market value of Ethereum dropped to 273.4 billion USD, ranking 37th on the global company market value list, lower than Coca-Cola and Bank of America, and even below the cash reserves of a certain famous investor after reducing their holdings in Apple.

As a leading public chain for the application of Crypto Assets, Ethereum has enormous potential in terms of technology adoption and innovation. This recent fall in market value has also created better positioning opportunities for institutional investors. In addition, the market expects that the Federal Reserve may start cutting interest rates in September. A rate cut could offset the impact of a stronger yen in the short term, and at that time, the release of market liquidity could bring more capital inflow to Ethereum spot ETFs.