The crypto market has experienced a significant fall, with liquidation scale reaching a new high.

Recently, the performance of the crypto market has been sluggish, with multiple factors leading to a significant fall in prices. Geopolitical tensions, stock market sell-offs triggered by interest rate hikes in Japan, weak U.S. employment data, and concerns about an economic recession have collectively contributed, along with the release of weak earnings reports from major tech and retail giants that triggered large-scale sell-offs in tech stocks, further exacerbating the downward pressure on the market.

On August 5th, as the traditional financial market experienced significant falls, the crypto market also faced a sharp decline. 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.

On-chain analysis shows that the sharp fall in Ethereum's price has triggered a large number of whale addresses' leveraged liquidations. Multiple large holders were forced to sell their ETH to repay loans, further exacerbating the downward trend in the market. 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, with a fall of over 30%. In addition to the overall downward pressure on the crypto market, other factors contributing to Ethereum's plunge include increased market leverage liquidation pressure and news of large trading institutions selling off a significant amount of ETH.

The CEO of a decentralized platform believes that "the fall of ETH may be related to a large trading institution, possibly because the company was required to provide additional margin in the traditional market and needed to obtain liquidity over the weekend, or it may be due to regulatory reasons for choosing to exit the encryption business."

Research reports show that since August 3, the five major market makers have sold a total of 130,000 ETH. One institution sold more than 47,000 ETH, ranking first, while another institution closely followed, selling more than 36,000 ETH.

The chain reaction of this series of events led to a liquidation amount of up to $100 million for ETH within 1 hour, with a total liquidation amount exceeding $445 million in 24 hours. The liquidation amount on DeFi platforms exceeded $320 million, setting a new high for this year. Among them, the liquidation amount of ETH collateral was $216 million, wstETH was $97 million, and wBTC was $35 million.

As the price of ETH falls to nearly 2100 dollars, the gas fees on the Ethereum network have also surged to 710 gwei. It is worth noting that if ETH continues to fall to 1950 dollars, crypto assets worth 92.2 million dollars in DeFi protocols will face liquidation risks; if it drops to 1790 dollars, 271 million dollars of DeFi assets will be on the brink of liquidation.

After this sharp fall, the long leverage in the crypto market has been massively liquidated, and a large number of short-term spot holders have exited the market. Although the market fundamentals have been impacted, they have not completely 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 possibility of continuing to drop significantly in the short term is low.

ETH Spot ETF Faces Challenges and Opportunities

Compared to Bitcoin spot ETFs, the performance of Ethereum spot ETFs has been relatively weak. Data shows that although there was a net outflow in Bitcoin ETFs (mainly due to the sell-off from a certain fund) during the period, the overall cumulative net inflow is still around $17.5 billion, which is one of the reasons for the relative stability of Bitcoin prices.

In contrast, the net inflow data for Ethereum spot ETFs is not very ideal. Due to the turbulent macroeconomic environment at the time of launch and the significant decline in risk markets such as the US stock market, the cumulative net outflow has reached 511 million dollars, and the total asset market value is relatively 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 dollars, while other ETF issuers are all in a net inflow state.

Currently, from the perspective of recognition in traditional markets, there is still a significant gap between ETH and BTC. Although the ETH spot ETF is still a "supporting role" compared to the BTC spot ETF, it marks a significant regulatory advancement in the crypto industry, with far-reaching long-term implications. As traditional institutions gain a deeper understanding of the fundamentals of ETH, it may attract more potential capital inflows in the future.

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 hold a positive outlook on the encryption industry." Historical data shows that the crypto market often performs poorly in August and September, but the trend after October is usually more optimistic.

As of August 5, the market capitalization of ETH is $273.4 billion, ranking 37th in the global company market capitalization list, lower than traditional giants such as Coca-Cola Technology and Bank of America, and even lower than the cash reserves of a certain famous investor's company after reducing its Apple stock holdings ($276.9 billion).

As a leading application-oriented public chain in the field of encryption, Ethereum has enormous potential for technological adoption and innovation. This decline in market value has also created better positioning opportunities for institutional investors. In addition, the market generally believes that the Federal Reserve may initiate interest rate cuts in September. The interest rate cut policy may offset the impact of a strong yen in the short term, and the release of market liquidity is expected to bring more funding into the ETH spot ETF.