Crypto Assets market suffers a heavy blow, large-scale liquidations hit

Recently, the Crypto Assets market has experienced a severe decline, primarily influenced by global geopolitical tensions, adjustments in Japan's monetary policy, weak U.S. employment data, and poor earnings reports from tech giants. On August 5th, as traditional financial markets plummeted significantly, the Crypto market also faced a sharp drop, with the total liquidation amount across all exchanges reaching 1 billion USD within 24 hours, of which Bitcoin and Ethereum accounted for 350 million USD and 342 million USD, respectively.

The sharp decline in Ethereum prices has triggered massive on-chain leverage liquidations. Several large holders were forced to sell their holdings of ETH to repay loans, further exacerbating the market downturn. For example, one address liquidated 6,559 ETH to repay a loan of 277.9 WBTC, while another address liquidated 2,965 ETH to repay a loan of 7.2 million USDT.

Data shows that Ethereum plummeted from around $3,300 to below $2,200 in the past week, a decline of over 30%. In addition to the overall downward pressure on the market, news of a large trading firm selling a significant amount of ETH also had a considerable impact on prices. It was reported that the firm's encryption wallet transferred a large amount of ETH to exchanges in a short period, triggering market speculation.

An industry expert believes that the company's sell-off may stem from margin call demands in the traditional market or a decision to exit the Crypto Assets business for regulatory reasons. According to a research report, since August 3, the five major market makers have collectively sold 130,000 coins of ETH, with one market maker selling over 47,000 coins of ETH, ranking first.

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 August 5th, the lending liquidation on the decentralized finance platform exceeded 320 million USD, setting a new high for this year. Among them, the liquidation amount of ETH collateral was 216 million USD, wstETH was 97 million USD, and wBTC was 35 million USD.

As the price of ETH falls to around $2100, the Ethereum network is experiencing congestion, with the highest gas fee soaring to 710 gwei. Notably, if ETH continues to drop to $1950, $92.2 million worth of Crypto Assets will face liquidation risk; if it falls to $1790, $271 million worth of DeFi assets will be liquidated.

After this sharp decline, the long leverage in the crypto market has been significantly cleared, and a large number of short-term investors have chosen to exit. Although the market fundamentals have been impacted, it has not completely collapsed. The crypto market fear and greed index has dropped to 26, which is a relatively low level since 2023, and the likelihood of continuing to decline significantly in the short term is low.

The Development Prospects of ETH Spot ETF

Compared to Bitcoin spot ETFs, Ethereum spot ETFs have performed relatively poorly. Data shows that despite experiencing a period of net outflows (mainly due to sell-offs from a certain fund), the overall cumulative net inflow of Bitcoin spot ETFs has still reached around $17.5 billion, which is one of the reasons for the relative stability of Bitcoin prices.

In contrast, the launch of the Ethereum spot ETF comes at an unfavorable time amid global macroeconomic turmoil and a significant decline in risk assets such as U.S. stocks, with a cumulative net outflow of $511 million, and the total asset size is also far smaller than that of the Bitcoin ETF. Notably, a certain fund's ETH ETF accounts for the majority of the outflow, valued at over $2.1 billion, while other ETF issuers maintain a net inflow status. It is worth noting that this fund still holds nearly $6 billion worth of ETH, and further outflows may occur in the coming weeks.

Currently, from the perspective of recognition in traditional markets, Ethereum still has a significant gap compared to Bitcoin. Although the Ethereum spot ETF is currently just a "supporting role" to the Bitcoin ETF, it marks a significant progress in regulation for the encryption industry, with far-reaching implications in the long run. As traditional institutions gain a deeper understanding of Ethereum's fundamentals, it is expected to attract more capital inflows in the future.

Amid market turmoil, an industry executive stated that in the face of global macro fluctuations, attention should be paid to technology, industry development, and application adoption, rather than short-term price fluctuations. He remains optimistic about the prospects of the encryption industry. Historical data shows that Crypto Assets typically perform poorly in August and September, but the trends after October are often more optimistic.

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

As a leading application-oriented public chain in the field of Crypto Assets, Ethereum has great potential in technological application and innovation. This decline in market value has also created better layout opportunities for institutional investors. In addition, the market generally expects that the Federal Reserve may start to cut interest rates in September. The Federal Reserve's interest rate cut policy is expected to offset the short-term impact of yen fluctuations, and the increase in market liquidity may bring more capital injection for Ethereum spot ETFs.