In just three days, Ethereum ($ETH ) has significantly retraced from its high, and market sentiment has rapidly deteriorated. This is not just a technical correction, but possibly the beginning of a deep bear market, driven not only by the crypto market itself but also by the increasing instability of the global macroeconomy, which is gradually undermining investor confidence. Below, we comprehensively analyze why Ethereum may be heading towards a deeper trough, considering the economic environment, interest rate policies, geopolitical factors, and international trade pressures.
1. Economic soft landing dream shattered, US economic risks rise
Recent US economic data has shown concerning changes. April's CPI and PPI have both exceeded market expectations, intensifying concerns about 'sticky inflation.' The Federal Reserve's original expectation for interest rate cuts has been significantly postponed, and the market is even beginning to price in the possibility of 'no rate cuts by the end of the year.' Cryptocurrency assets, as high-risk high-beta assets, are extremely sensitive to interest rates, and when the market expects the cost of capital to remain high for an extended period, risk assets naturally become the first targets for escape.
2. No hope for interest rate cuts, strong dollar leads to capital inflow
As the prospect of interest rate cuts dims, the US dollar index has rebounded strongly since early May, draining liquidity from global markets. Capital is withdrawing en masse from emerging markets and risk assets (including cryptocurrencies), flowing back into US short-term bonds and cash positions. As a result, liquidity in the crypto market has sharply contracted, and the total value locked (TVL) in DeFi protocols continues to decline, further weakening Ethereum's value proposition as an 'asset hosting platform.'
3. Geopolitical powder keg ignites a wave of risk aversion
The situation in the Middle East remains tense, with escalating conflicts between US and Iranian proxies and expanded fire lines at the Israel-Lebanon border. Meanwhile, the Russia-Ukraine war continues to consume Western resources, exacerbating market uncertainty. Whenever risk aversion rises, gold and US Treasuries benefit, unlike the highly volatile crypto assets. This wave of geopolitical risk has prompted some large institutional investors to quickly reduce their digital asset holdings to lower the volatility of their portfolios.
4. Trade war re-ignited, pressure from Eastern powers expands
The US government officially announced this month new high tariffs on Chinese electric vehicles and high-tech products, marking the start of a new round of the technology cold war. China may further strengthen capital controls and technology export restrictions, leading to new disruptions in the global supply chain. For the crypto market, any restrictions on miners, trading volume, and capital supply from China will further drag down overall market depth and confidence. This impact should not be underestimated, especially for assets like Ethereum that are highly dependent on Asian users and mining pools.
5. Technical breakdown triggers a chain reaction of deleveraging
From a technical analysis perspective, Ethereum has recently clearly broken below several key support zones, triggering a large number of leveraged positions to liquidate and a chain reaction of stop-loss orders. The funding rate has turned negative, on-chain trading activity has declined, accelerating the spread of bearish trends. Historical experience tells us that once confidence is shattered, the decline often happens faster and deeper than expected.
This is not simply a price correction, but a systemic retreat under multiple factors resonating. In the context of unresolved macroeconomic pressures, continuous capital outflows, and heightened geopolitical risks, Ethereum is losing its luster as a core digital asset. In the coming weeks, without significant policy shifts or market catalysts, the crypto market may face a severe test of faith.
