The crypto market has encountered a big dump, triggering a chain reaction.

The crypto market has been sluggish since August 2, due to multiple factors. Geopolitical tensions, stock market sell-offs triggered by Japan's interest rate hikes, poor U.S. employment data, and concerns about economic recession have all negatively impacted market sentiment. In addition, the weak earnings reports released by major tech and retail giants have also triggered a massive sell-off in tech stocks.

On August 5th, with a significant fall in the traditional financial market, the crypto market also experienced intense fluctuations. Data shows that the total liquidation amount across all exchanges reached as high as $1 billion within 24 hours, with the liquidation amounts for Bitcoin and Ethereum reaching $350 million and $342 million respectively.

On-chain analysis shows that the significant fall in Ethereum prices has triggered a series of chain reactions. Multiple whale addresses were forced to liquidate their held ETH to repay loans. For example, one address liquidated 6,559 ETH to repay a loan of 277.9 WBTC; another address liquidated 2,965 ETH to repay a loan of 7.2 million USDT. This large-scale liquidation further exacerbated the downtrend in the market.

Market data shows that in the past week, ETH has fallen from around $3,300 to below $2,200, a decline of over 30%. In addition to the overall low sentiment in the crypto market, other factors contributing to the big dump of ETH include increased leverage liquidation pressure and a large amount of ETH selling in the market.

An industry expert stated that the big dump of ETH may be related to certain large institutions. These institutions may need to obtain liquidity over the weekend due to margin calls in the traditional market, or they may choose to exit the cryptocurrency business for regulatory reasons.

According to a research report, since August 3, the top five market makers have sold a total of 130,000 ETH. One institution sold over 47,000 ETH, ranking first. Another institution followed closely, selling over 36,000 ETH. This large-scale selling behavior further intensified the falling pressure in the market.

The chain reaction of this series of events led to a liquidation amount of up to 100 million USD for ETH within one hour, with a total liquidation amount exceeding 445 million USD in 24 hours. On decentralized finance (DeFi) platforms, the liquidation amount for borrowing on August 5 exceeded 320 million USD, setting a new high for this year. Among them, the liquidation amount of ETH collateral was 216 million USD, accounting for the majority.

As the price of ETH fell to nearly $2100, transaction fees on the Ethereum network briefly surged to 710 gwei. It is worth noting that if ETH continues to fall to $1950, $92.2 million worth of encryption assets in DeFi protocols will face liquidation risk. If it drops to $1790, $271 million of DeFi assets will be liquidated.

Despite the big dump causing severe damage to the market, analysts believe that the market's fundamentals, while impacted, have not been completely destroyed. The crypto market fear and greed index has fallen to 26, which is a relatively low level since 2023, indicating that there may be limited room for further significant declines in the short term.

Analysis of the Prospects for ETH Spot ETF

The performance of Bitcoin spot ETFs has been relatively stable, despite a period of net outflows in between, the overall cumulative net inflow is still about 17.5 billion USD, which has supported the price of Bitcoin to some extent.

In contrast, the performance of the ETH spot ETF has been relatively weak. Due to the timing of its launch coinciding with a turbulent macroeconomic environment and a general decline in risk markets, the cumulative net outflow has reached $511 million, with the total asset size being relatively small compared to the Bitcoin ETF. Among them, a large institution's ETH product accounted for the majority of the outflow, valued at over $2.1 billion, while other ETF issuers maintained a net inflow.

From the recognition of the traditional market, there is still a significant gap between ETH and BTC. However, the launch of the ETH spot ETF still marks a major progress in regulation for the encryption industry, with long-term significance. As traditional institutions gain a deeper understanding of ETH's fundamentals, more funds may flow in the future.

An industry executive stated that during periods of global macroeconomic fluctuations, attention should be paid to technology, industry development, and adoption rather than short-term price fluctuations. He remains optimistic about the prospects of the encryption industry. Historical data shows that the performance of the crypto market is usually poor in August and September, but the trend after October tends to be more optimistic.

As of August 5, the market capitalization of ETH is approximately $273.4 billion, ranking 37th on the global company market capitalization list, lower than that of some well-known traditional enterprises. As an important public chain in the encryption field, ETH still has huge potential in terms of technological applications and innovations. This market capitalization decline may have created better positioning opportunities for institutional investors.

In addition, the market expects that the Federal Reserve may start cutting interest rates in September. If this expectation materializes, it may offset the impact of other unfavorable factors in the short term and bring more capital inflows for the ETH spot ETF.