Data Review: Ethereum's "Darkest Moment": Contract Liquidation of $380 Million, Continuous Outflow of Staking, Inflation Returns

Author: Frank, PANews

On February 3, the cryptocurrency market faced another dark moment, experiencing a significant drop. Within 24 hours, the number of liquidated positions across the entire network reached 720,000, totaling $2.21 billion (due to incomplete data statistics, Bybit CEO Ben Zhou speculated that the actual figure could reach $8 to $10 billion), with long positions liquidating at $1.87 billion and short positions at $340 million. Ethereum was particularly noteworthy during this round of plummet, dropping as much as 25% in a single day, marking the largest single-day decline in nearly four years (since May 2021). Additionally, the total liquidation amount for Ethereum on that day reached $380 million, surpassing the liquidation amount for Bitcoin contracts.

After experiencing this wave of liquidations, market disappointment in Ethereum has peaked. There are also rumors that certain industry whales or institutions being liquidated during this market trend contributed to the sharp decline of ETH. So, what is the current fundamental situation of Ethereum after weathering this storm? PANews analyzes various aspects such as contract open interest, ETF fund inflows, on-chain data, and token inflation to provide a comprehensive view of Ethereum.

Price Erases Yearly Gains, Contract Open Interest Hits New Highs

Firstly, in terms of price, Ethereum's lowest point in this round was $2,125, which, while not lower than the $2,111 correction in August 2024, had a larger single-day volatility, proving to be lethal for the contract market. From the peak of $4,107 to the lowest point, the correction over nearly 50 days reached 48%, with prices nearly returning to levels seen at the beginning of 2024. This has also sparked frustration among long-term holders.

Although Ethereum's market performance has not been impressive over the past year, the open interest in contracts has consistently increased across various exchanges, repeatedly breaking historical records. According to coinglass data, as of January 31, the total contract open interest for Ethereum reached $30 billion, while when Ethereum hit its historical high of $4,800 in 2021, this figure was only $11.4 billion. Following the market crash, as of February 5, the open contract amount for Ethereum across major exchanges dropped to $23.7 billion, a decrease of nearly $7 billion.

The comparison between open interest and price changes indicates a significant disparity between market expectations and actual performance, leading to continuous betting and resulting in the severe volatility of this short-term drop.

Recent Bottom Fishing in the U.S. Spot ETF Market?

Regarding the inflow of Ethereum ETF funds in the U.S., since November 6, there has been a noticeable increase in net inflow of funds into various institutional Ethereum ETFs. The highest single-day net inflow was recorded at $428 million on December 5. Of course, with the significant fluctuations in Ethereum's price, both single-day net inflows and outflows have seen marked increases. On January 8, the single-day ETF net outflow reached $159 million, setting a historical record. On February 3, despite the sharp drop in Ethereum's price and significant losses in the contract market, ETF funds did not experience outflows; instead, on February 4, a net inflow of $300 million was recorded, marking the third-highest single-day net inflow. This suggests that traditional market institutions in the U.S. seem to be accumulating positions in this range.

As of February 4, the total net asset value of Ethereum ETFs is approximately $10.37 billion, accounting for 3.15% of Ethereum's market capitalization. In comparison, the total net asset value of BTC ETFs is about $116 billion, representing approximately 5.93% of its market capitalization, which is significantly higher than that of Ethereum. From this data, it appears that the impact of ETFs on Ethereum's market trend is still relatively small.

On-Chain Data Stagnates, Staking Continues to Flow Out

Of course, this round of decline is fundamentally caused by other macro factors. Ethereum's sharp drop is merely the weakest link in this downturn. From on-chain data, the number of daily active addresses for Ethereum reached a two-year high of 553,000 just before the crash on January 25, but has since been on a downward trend. In terms of on-chain revenue, the income level of the Ethereum mainnet is far below that of the same period last year, with daily income at a low of around $1 million. This may also explain why the inflow of on-chain staking has remained negative since mid-November.

Data shows that since mid-November 2024, the net inflow of Ethereum's on-chain staking has consistently been negative over two weeks, with the largest single-day net outflow reaching 181,000 ETH. Currently, this data point remains below the zero axis, marking the longest duration below the zero axis since the Shanghai upgrade. Previously, from April 12 to April 30, 2023, there was a net outflow for more than half a month. At that time, the market trend was in a downward state after a short-term peak, with a maximum correction of about 16%. This time, the net outflow has lasted for 84 days, with the price experiencing a maximum correction of nearly 50% from its peak.

In terms of staking quantity, this data peaked at approximately 34.95 million ETH on November 10, 2024, with the number of stakers at 1.09 million. This figure has shown a downward trend, with the current staking quantity at about 34 million ETH and the number of stakers around 1.06 million.

In addition to the above, Ethereum's inflation has recently become a focal point of market attention. Since Ethereum transitioned from POW to POS, the market's expectation for Ethereum's supply was that it would achieve a deflationary model through token burning. However, recently it has been observed that after more than a year of deflation followed by inflation, the number of new tokens for Ethereum has completely offset the deflation caused by burning, and as of February 5, Ethereum's inflation rate has returned to 0%, similar to levels before the merge. Analysts attribute this change primarily to the reduction in the amount of on-chain token burning following the Dencun upgrade.

However, even so, compared to the issuance model of POW, the inflation rate of POS is still significantly lower overall. Additionally, Ethereum's current inflation rate is also lower than that of BTC.

Overall, the recent violent fluctuations in Ethereum's market are driven by both external factors influenced by macroeconomic conditions and internal factors such as the continuous rise in contract open interest, increased betting, and poor performance of on-chain data. The ultimate result is a significant decrease in both long and short positions, with prices quickly rebounding above $2,900 shortly after the plunge on February 3. Meanwhile, the funds in the U.S. spot ETF market are generally in an inflow state, further reflecting the divergence between the spot and futures markets.

Moving forward, the key to truly driving the market recovery may lie in whether the various activity metrics within the Ethereum ecosystem can show actual growth. Otherwise, the short-term trend will remain difficult to predict, posing significant risks for investors keen on leveraging and trading contracts, whether they are bottom-fishing or shorting.