Who is the mastermind behind Ethereum's price "halving"?

Author: Mia, ChainCatcher

Editor: Marco, ChainCatcher

Amid the global financial panic and sharp declines, the cryptocurrency market is experiencing a new turmoil.

In the past 24 hours, the global cryptocurrency market cap has dropped by over 10%, with major cryptocurrencies like BTC and ETH seeing significant price declines. Accompanied by a sell-off wave on Sunday evening during the U.S. trading session, BTC plummeted to its lowest level since March, while ETH has "halved" compared to its high of $4000 on March 12. In the past 24 hours, ETH has fallen by over 20%, with a weekly decline exceeding 30%, completely erasing its gains for the year.

Amid the crash, cries of despair are everywhere.

Why did ETH plummet?

Yen Appreciation, Global Buy Orders

At the beginning of August, the Bank of Japan announced a 25 basis point interest rate hike, leading to a surge in the yen, while Japan's Nikkei stock index saw a significant drop. This volatility quickly spread to global markets, including the U.S. stock market and the cryptocurrency market. The Nasdaq index fell by over 5% in the last two trading days, and on Sunday evening, Nasdaq futures dropped by 2.5%.

In addition to the Bank of Japan's hawkish stance, the U.S. Federal Reserve's (Fed) policies have also exacerbated market uncertainty. Although the Fed kept interest rates unchanged, its ambiguous stance on a potential rate cut in September surprised market participants. While almost everyone believed a rate cut was a done deal, the Fed's vague statements led the market to reassess its policy direction.

Market Makers Running for Cover

Alongside the international financial environment causing ETH's plunge, the large-scale token transfers by market makers have also triggered panic in the ETH market.

Recently, Jump Crypto transferred hundreds of millions of dollars worth of cryptocurrencies to exchanges, sparking speculation that it might be preparing to sell a large amount of assets.

Data from blockchain analysis platform Arkham shows that Jump Crypto's address has seen inflows of about $300 million since August 3, with most coming from exchange wallet addresses. At the same time, the trading firm's wallet has seen outflows of about $80 million during the same period, primarily to exchanges like Coinbase, Gate.io, and Binance. The flow of funds is ongoing, with most of the liquidated funds existing in the form of ETH.

In fact, according to cryptocurrency detective EmberCN, it seems that Jump began redeeming over $500 million worth of Lido's wstETH for ETH shortly after the U.S. spot Ethereum ETF was launched on July 25. Jump still holds about $130 million in staked ETH, while nearly $200 million in unstaked ETH has entered exchanges.

Additionally, Jump Crypto has also transferred USDC, USDT, UNI, and SHIB to cryptocurrency exchanges. With more funds flowing into exchanges, crypto enthusiasts are now speculating whether Jump is preparing to liquidate hundreds of millions of dollars worth of cryptocurrencies. As a significant player in the market, Jump Crypto's selling behavior undoubtedly puts immense pressure on the market, especially during this sensitive period following the ETF launch, which the market interprets as a lack of confidence in Ethereum's future trajectory.

In fact, there have been reports that the U.S. Commodity Futures Trading Commission is investigating Jump Crypto's cryptocurrency investment activities, adding more uncertainty to its current actions.

Currently, Jump Crypto's transfer activities are still ongoing.

According to Spot On Chain monitoring, in the past 24 hours, JumpTrading transferred another 17,576 ETH (worth $46.78 million) to CEX. Currently, JumpTrading still holds 37,600 wstETH (worth $101 million) and 11,500 STETH (worth $26.3 million). According to Scopescan monitoring, Jump Crypto has deposited $91 million worth of ETH into its Binance deposit address since last Friday.

Moreover, other market makers and VCs are also transferring ETH on a large scale.

According to The Data Nerd monitoring, Wintermute transferred 22,460 ETH (approximately $5.2 million) from its market-making account and other trading platform accounts to its Binance deposit address in the past 24 hours, which was subsequently transferred to Binance's hot wallet.

In the past 16 hours, Symbolic Capital deposited 4,446 ETH (approximately $1.216 million) into Binance, which was then transferred to Binance's hot wallet.

Leverage Liquidation

In addition to the large-scale ETH transfers, a significant amount of on-chain lending liquidations is occurring due to ETH's sharp decline.

According to Parsec data, in the past 24 hours, the liquidation volume on DeFi exceeded $320 million, setting a new annual high. Among them, the liquidation volume of ETH collateral reached $187 million, wstETH reached $77.9 million, and wBTC reached $32.5 million.

According to on-chain analyst Yu Jin's monitoring, this morning's sharp drop in ETH led to some leveraged ETH whales being liquidated, further pushing ETH's price down by over 20%.

In fact, even whales are not immune to this massive drop. According to on-chain data released by Lookonchain on X, a certain whale address has been accumulating during ETH's decline, recently purchasing 4,000 ETH (worth $12.58 million). Since May 29, this whale address has increased its holdings by 17,012 ETH, worth $61 million, at an average price of $3,587 per ETH. Currently, ETH's price has dropped to around $2,300, resulting in a paper loss of approximately $21.89 million.

In such a turbulent cryptocurrency market, the confidence of ordinary investors has been severely impacted. According to data, today's Fear and Greed Index has dropped to 34, shifting from greed to fear (yesterday's indicator was 37). A large number of investors are caught in panic, and panic selling further exacerbates the market's downward trend, creating a vicious cycle.

ETF Positive News Realization, Market Reversal

The sharp decline in ETH is not solely due to current market panic; it is also closely related to the realization of ETF positive news.

Since the beginning of this year, the overall recovery of the crypto market has kept ETH relatively stable, even rising above $4,000 at one point.

However, as the ETH ETF process accelerated, ETH's rise seemed to lack momentum. The launch of the ETH ETF was generally regarded as good news by the market. However, the reality turned out to be the opposite; after the official launch of the ETH ETF, the downward trend of ETH not only did not ease but further intensified, with the ETH ETF showing a net outflow of $341 million in its first week.

Why did the ETH ETF not drive ETH prices up as the market expected?

Overly High Expectations: The gap between market expectations and reality is a significant factor. Before the ETF launch, the market generally held overly high expectations, believing it would bring substantial new funds to ETH, providing significant upward potential. However, the actual inflow of funds may not have met this expectation, leading to disappointment in the market.

Fund Flow: The actual net buying amount of the ETH ETF is far lower than market expectations. Although there is a large flow of front-end derivatives for the ETF, the actual funds flowing into ETH are limited and insufficient to support its price increase. Conversely, due to overly high market expectations, when actual fund inflows are insufficient, it is easier to trigger market sell-offs.

Investor Preference: ETH is more often viewed as a technological asset, primarily attracting venture capital firms, crypto funds, and technical experts. In contrast, BTC, as a macro asset, is more attractive to institutional investors such as macro funds and pension funds. Therefore, ETH may face more challenges in attracting a broad range of investors. If the ETH ETF fails to attract enough widespread investors after its launch, it could lead to an imbalance in market supply and demand.

Economic Benefits: Although Ethereum is technically innovative, its actual economic benefits do not support its current high valuation. So far, Ethereum has not developed convincing applications to enhance its economic benefits, and key indicators such as transaction fee income and annual revenue are underperforming. In the eyes of analysts, its price seems somewhat "disproportionate," and when the market realizes this, it can easily trigger a reassessment of ETH's true value, leading to increased sell-offs.

In fact, the launch of the ETH ETF, in a sense, also marks a new phase for the market, as investors begin to reassess the value and risks of cryptocurrencies. This market adjustment may lead to a reallocation of funds, which is likely to trigger some technical sell-offs, with some investors possibly using the ETF as a hedging tool by selling ETH to balance their portfolios.

Currently, under the dual pressure of the ETF falling short of expectations and the broader financial environment, Ethereum still faces many challenges in the short term.