The crypto market has fallen significantly, triggering a wave of liquidations.

Recently, the crypto market has shown sluggish performance, with multiple factors leading to a significant fall in the market. The combined impact of tense geopolitical situations, interest rate hikes in Japan triggering stock market sell-offs, weak U.S. employment data, and concerns about economic recession has affected market sentiment. In addition, the weak earnings reports released by major technology and retail companies have also triggered large-scale sell-offs of tech stocks.

On August 5th, with the significant fall of the traditional financial market, the crypto market also experienced a severe crash. Within 24 hours, the total liquidation amount across exchanges reached 1 billion USD, with the liquidation amounts for Bitcoin and Ethereum reaching 350 million USD and 342 million USD respectively.

According to a report by on-chain analysts, the significant fall in Ethereum prices has triggered a large number of on-chain leverage liquidations among holders. Several large holding addresses were forced to sell their Ethereum holdings to repay loans. For example, one address liquidated 6,559 Ethereum to repay a loan of 277.9 WBTC; another address liquidated 2,965 Ethereum to repay a loan of 7.2 million USDT.

Data shows that in the past week, Ethereum plummeted from around $3,300 to below $2,200, a fall of over 30%. In addition to the overall decline in the crypto market, other factors contributing to Ethereum's crash include increased market leverage liquidation pressure and news of certain large trading institutions selling off large amounts of Ethereum.

Some industry insiders believe that the sell-off by a large trading institution may be related to being required to post additional margin in the traditional market, needing to obtain liquidity over the weekend, or it could be due to regulatory reasons leading to a decision to exit the encryption business.

According to data analysis, since August 3, the five major market makers have collectively sold 130,000 Ethereum. One company sold over 47,000 Ethereum, while another sold over 36,000 Ethereum. These sell-off activities further exacerbated the market's fall trend.

This crash led to a liquidation amount of up to $100 million for Ethereum within 1 hour, with a total liquidation amount exceeding $445 million in 24 hours. The liquidation amount on decentralized finance platforms surpassed $320 million, setting a new high for this year. Among them, the liquidation amount of Ethereum collateral was $216 million.

As the price of Ethereum falls to nearly $2100, network transaction fees once soared to 710 gwei. Notably, if Ethereum continues to fall to $1950, $92.2 million worth of crypto assets will be at risk of liquidation; if it drops to $1790, $271 million worth of assets will be liquidated.

Despite the massive liquidation of long leverage in the market due to this fall and a large number of short-term investors exiting the market, the fundamentals of the market have not completely collapsed. The crypto market fear and greed index has fallen to 26 (fear state), which is a relatively low level since 2023, and the possibility of continuing to fall sharply in the short term is low.

The Prospects of Ethereum Spot ETF

Compared to the data of Bitcoin spot ETFs, although there was a period of net outflow (mainly due to the sell-off by a certain fund), the overall cumulative net inflow is still around 17.5 billion US dollars, which is one of the reasons for the relative stability of Bitcoin prices.

However, the situation for Ethereum spot ETFs is not very optimistic. Due to the turbulent macroeconomic environment at the time of launch and the significant decline in risk markets such as the U.S. stock market, the cumulative net outflow has reached $511 million, with the total asset size being smaller compared to Bitcoin ETFs. Among them, a certain fund's ETH product accounted for most of the outflow, valued at over $2.1 billion, while other ETF issuers are in a net inflow state.

From the perspective of recognition in traditional markets, Ethereum still has a significant gap compared to Bitcoin. Although Ethereum currently appears less prominent in the spot ETF market, its launch marks a major advancement in regulation for the encryption industry, which is significant in the long term. As traditional institutions gain a deeper understanding of Ethereum's fundamentals, more funds may flow in the future.

After the market fell sharply, the CEO of a payment company stated that in the face of global macro fluctuations, one should focus on technology, industry, and adoption rather than price, and he remains optimistic about the encryption industry. Historical data shows that the crypto market often performs poorly in August and September, but the trend after October is relatively optimistic.

As of August 5, the market capitalization of Ethereum is $273.4 billion, ranking 37th on the global company market capitalization list, below the market capitalization of Coca-Cola and Bank of America, and even lower than the cash reserves of a certain famous investor after reducing their Apple stock holdings ($276.9 billion).

As an important public chain in the cryptocurrency field, Ethereum has great potential in terms of technological application and innovation. The recent market capitalization decline may create better positioning opportunities for institutional investors. In addition, the market expects that the Federal Reserve may start cutting interest rates in September. If rate cuts become a reality, it will help offset the impact of the strengthening yen, and the increase in market liquidity may bring more capital inflow to Ethereum spot ETFs.