Crypto Market Encounters “Black Monday” Where Will ETH Go?

Crypto market plunges, triggering massive liquidations

The cryptocurrency market has been sluggish since August 2, mainly due to geopolitical tensions, a sharp sell-off in Japanese stocks caused by Japan's interest rate hike, weak U.S. jobs data and recession concerns, and a massive sell-off in technology stocks caused by weaker-than-expected revenue reports from major technology and retail giants.

On August 5, as traditional financial markets such as Japan experienced a sharp decline, the crypto market also experienced a plunge. Within 24 hours, $1 billion was liquidated in all exchanges across the network, including $350 million in BTC and $342 million in ETH.

According to a report by on-chain analyst @EmberCN, the sharp drop in ETH prices triggered a wave of on-chain leveraged liquidations of ETH whales, exacerbating the decline. Multiple whale addresses were forced to sell their ETH holdings to repay their loans, including:

The address starting with “0x1111” liquidated 6,559 ETH to repay a 277.9 WBTC loan.

The address starting with “0x4196” liquidated 2,965 ETH to repay a $7.2 million USDT loan.

The address starting with “0x790c” liquidated 2,771 ETH to repay a $6.06 million USDC loan.

The address beginning with “0x5de6” liquidated 2,358 ETH to repay a $5.17 million USDC loan.

CoinGecko data shows that in the past week, ETH has plummeted from around $3,300 to below $2,200, a drop of more than 30%. Other factors for the ETH plunge include increased market leverage liquidation pressure and news that Jump Trading sold a large amount of ETH.

[Note: According to the chain analysis website Spot On Chain, on August 5, the crypto wallet of Chicago trading company Jump Trading transferred 17,576 ETH worth more than $46 million to a centralized exchange. Fortune magazine reported on June 20 that the U.S. Commodity Futures Trading Commission (CFTC) is investigating Jump Trading's cryptocurrency investment activities. Since July 25, the wallet has transferred nearly 90,000 ETH to the exchange. After the market crash, the wallet still holds 37,600 Lido protocol wstETH and 11,500 stETH. ]

Julian Hosp, CEO and co-founder of decentralized platform Cake Group, believes that “ETH’s plunge is related to Jump Trading. The reason may be that the company was called for margin in the traditional market and needed to obtain liquidity on weekends. It may also choose to exit the cryptocurrency business due to regulatory reasons.”

According to a research report by 0xScope, the top five market makers have sold a total of 130,000 ETH since August 3. Among them, Wintermute sold more than 47,000 ETH, followed by Jump Trading, which sold more than 36,000 ETH, and Flow Traders ranked third, selling 3,620 ETH. GSR Markets also sold 292 ETH, while Amber Groupd sold 65 ETH. Although Wintermute sold the most ETH, Jump Trading started selling ETH last weekend, and the selling action was ahead of other mainstream market makers.

The chain reaction of the above events led to ETH liquidation of up to $100 million within one hour, and a total liquidation of more than $445 million in 24 hours. According to Parsec data, on August 5, lending liquidations on DeFi platforms exceeded $320 million, setting a new high this year. Among them, the liquidation of ETH collateral was $216 million, wstETH was $97 million, and wBTC was $35 million.

As ETH fell to nearly $2,100, the highest gas fee of Ethereum reached 710 gwei. It is worth noting that if ETH continues to fall to $1,950, $92.2 million worth of crypto assets in the DeFi protocol will be liquidated; if ETH falls to $1,790, $271 million worth of DeFi assets will be liquidated.

After the crash, the long leverage in the crypto market was cleaned up on a large scale, a large number of short-term spot holders withdrew from the market, and the market fundamentals were shaken but not destroyed. The crypto market fear and greed index fell to 26 (fear state), which is at a lower level since 2023, and there is little room for further decline in the short term.

Where is the ETH spot ETF going?

Judging from the data of BTC spot ETF, although there was a period of net outflow in the middle (mainly from the selling of Grayscale GBTC), the overall cumulative net inflow was still around US$17.5 billion, which is also the reason why the BTC price is relatively strong.

Looking at the net inflow data of ETH spot ETF, due to the unfavorable situation of macroeconomic turbulence and sharp decline in risk markets such as US stocks at the time of its launch, the current cumulative net inflow is -511 million US dollars, and the total asset market value is relatively small compared with BTC. Among them, Grayscale's ETHE accounted for most of the outflow, with a value of more than US$2.1 billion, while other ETF issuers were in a state of net inflow. Since Grayscales ETHE still holds ETH worth more than US$5.97 billion, further outflows are likely in the coming weeks.

At present, from the perspective of traditional market recognition and acceptance, there is still a big gap between ETH and BTC. Although ETH is still only a "supporting role" of BTC spot ETF, it marks a major progress in the regulation of the crypto industry, which is of great significance in the long run. As traditional institutions further understand the fundamentals of ETH, more potential funds will flow into ETH in the future.

After the market crash, Circle CEO said, "In the face of global macro fluctuations, we should focus on technology, industry and adoption rather than prices, and we remain optimistic about the crypto industry." According to historical data, the cryptocurrency industry tends to perform poorly in August and September, but the trend after October is more optimistic.

According to data from August 5, the market value of ETH is US$273.4 billion, ranking 37th on the global company market value list, lower than the market value of Coca-Cola and Bank of America, and even lower than Berkshire's cash reserves ($276.9 billion) after Buffett reduced his holdings in Apple.

As the leading public chain of cryptocurrency applications, it has great potential in technology adoption and innovation. The decline in ETH market value has also created better layout opportunities for institutions. In addition, the market believes that the Federal Reserve is likely to start cutting interest rates in September. The Federal Reserve's interest rate cut is enough to offset the impact of the yen in the short term. At that time, the release of market liquidity may bring more capital injection to the ETH spot ETF.