Source: Crypto Compound, compiled by Shaw Golden Finance
Ethereum has officially entered the price discovery phase. The second-largest cryptocurrency by market cap has broken through the historical high of $4,885 set in 2021, briefly reaching above $4,900, laying the groundwork for what could be a decisive chapter in this cycle. Unlike many previous cryptocurrency rallies, this breakout is not merely speculative—it is driven by shifts in macroeconomic policy, institutional demand brought by new exchange-traded funds (ETFs), strong on-chain fundamentals, and a change in the psychological threshold for capital entering the market.
Let’s analyze why this rebound is important, the driving factors behind it, and the risks that still exist.
Favorable macro liquidity
The market operates on liquidity, and Jerome Powell's remarks last week were exactly what risk assets wanted to hear. During his speech at Jackson Hole, the Federal Reserve Chair acknowledged that the risks to employment are rising and hinted that rate cuts could come sooner than expected. This dovish tone was enough to drive yields down, weaken the dollar, and boost the stock market—conditions that have historically ignited cryptocurrency bull markets.
Compared to Bitcoin, Ethereum behaves more like a high-beta liquidity asset. When the cost of capital is low, investors seek growth and cyclicality, not just safety. With Powell effectively opening the door for a rate cut in September, Ethereum finds itself in an excellent environment for breaking new highs.
ETF inflows: A new demand engine
The most important structural development in this cycle may be the launch of Ethereum spot ETFs. These investment tools provide institutional and traditional investors with a simple, regulated way to allocate capital without needing to interact with wallets or exchanges.
In just a few weeks, inflows have skyrocketed to billions of dollars, with daily additions surpassing hundreds of millions. Total assets under management have exceeded $12 billion, with over 6 million ETH currently held in ETFs. This capital will not return to exchanges in the short term—it is locked in, reducing the tradable supply.
Earlier this year, the launch of the Bitcoin ETF also triggered a similar demand shock. Now, Ethereum is experiencing its own structural buying, and the market has responded accordingly.
Ethereum and Bitcoin: Rotating trades
In this cycle, Bitcoin plays the role of digital gold—stable, conservative, and the first stop for institutional investors testing the waters of cryptocurrency. However, once liquidity turns positive, investors typically shift to more liquid assets.
Ethereum is in a similar situation. ETH is viewed as a ‘leveraged beta’ of liquidity—it responds more to capital flows than BTC, is more closely connected to applications, and is more cyclical. The ETH/BTC ratio has climbed to an annual high, reigniting discussions about whether Ethereum's market cap can eventually surpass Bitcoin's.
Whether or not a reversal occurs, what matters is that investors believe Ethereum has more explosive potential in the current phase of the cycle.
Leverage and liquidations
The original volatility of price movements is not only about fundamentals but also about positioning. Ahead of the Jackson Hole meeting, leverage across exchanges had increased significantly. When Powell made dovish remarks, the price of ETH surged, forcing shorts to cover.
The result is: over $200 million in liquidations within hours, most of which were ETH. This short squeeze is reflexive—liquidations push prices up, leading to more liquidations, creating a feedback loop. It amplifies market volatility in the short term but also clears weak positions, resetting the market to a healthier trend.
On-chain fundamentals
Unlike some periods in 2017 or even 2021, Ethereum's fundamentals now provide real support for its valuation. Several major trends stand out:
Layer 2 growth: Networks like Arbitrum, Optimism, and Base are processing more transactions than Ethereum's base layer while paying ETH fees.
Total locked value: DeFi activity has rebounded strongly, with total locked value (TVL) climbing back above $60 billion.
Corporate adoption: Upgrades like Pectra can reduce fees by over 90% and increase throughput, making ETH more suitable for practical use.
Supply dynamics: Since the merge, Ethereum's issuance has shown a deflationary trend during peak usage periods. The higher the activity, the more ETH is burned, leading to tightening supply during bullish market phases.
These foundational elements build a narrative that Ethereum (ETH) is not just a speculative token—it is a pillar of an evolving financial system.
The psychology of new highs
Breaking through historical highs means much more than clearing technical resistance—it changes market psychology. In 2021, traders who bought near the top had to wait nearly four years to break even. Now that ceiling has been broken, and prices are no longer under pressure from supply above.
This opens the door to price discovery, during which the FOMO (fear of missing out) mentality becomes a driving force. Momentum funds rush in as models trigger on new highs. Retail investors notice the headlines and seek opportunities to participate. Even institutions that ignored cryptocurrencies a year ago are now under pressure to explain why they haven't included ETH in their asset allocations.
In the market, psychological factors are often as important as mathematical factors. Currently, market sentiment has clearly turned bullish.
Global macro cross influences
Ethereum does not trade in isolation—it fluctuates with global markets. In the coming weeks, three macro variables will be extremely important:
Dollar: A weaker dollar will boost ETH/USD. If the dollar rebounds significantly, cryptocurrency prices may pull back.
Treasury yields: Yields below 4.2% will support risk assets. If yields rise to 5%, trouble may ensue.
Stock market: The Nasdaq and S&P indices remain strong. If the stock market continues to rise, ETH may follow suit.
Currently, all three forces tend to support. However, they can shift rapidly, and cryptocurrencies can react immediately.
Upcoming Risks
Every rebound comes with risks. Ethereum's breakout momentum is strong, but not unassailable. Major risks include:
Federal Reserve's hawkish stance: If inflation accelerates again, Powell may be forced to change policy direction. This would quickly drain liquidity.
ETF fatigue: Early inflows were strong, but it's uncertain whether demand can be sustained. We've seen Bitcoin ETFs cool off before rebounding.
Validator exits: Over 900,000 ETH are queued for withdrawal. If a large supply floods the market simultaneously, price volatility may increase.
Excessive leverage: After experiencing a significant squeeze, funding rates and open interest may become overheated again, making ETH susceptible to sharp corrections.
Recognizing these risks does not mean abandoning a bullish outlook—it means maintaining a realistic attitude.
Analysts' expectations
Following Ethereum's breakout, several large institutions have raised their target prices. Some institutions believe $5,000 is imminent. Others expect that if ETF inflows continue and the Federal Reserve cuts rates, it could reach $7,500 by the end of the year. More aggressive predictions state it could reach $25,000 by 2028.
Skeptics warn that new highs often attract profit-taking from long-term holders. However, so far, demand has absorbed the selling pressure. The fact that Ethereum can cleanly break through resistance indicates that this rise is not purely speculative—it is supported by structural fund flows.
What to watch next
Here are the key points to watch in the coming weeks:
Support level: $4,100 is the recent strong support level. Staying above this level could allow the upward trend to continue.
ETF inflow data: Daily figures will reveal whether institutional investors are still actively buying.
Macroeconomic data: Employment reports, inflation situations, and the next Federal Reserve meeting in September will be crucial.
On-chain activity: Monitor L2 transaction volumes, DeFi growth, and burn rates to gauge fundamental demand.
If all these factors hold, Ethereum not only can maintain its breakout trend but may also extend it into a new, higher range.
Ethereum's historical high is not just a number. It indicates that the asset has developed into a significant component of the financial system, influenced by macroeconomic factors, supported by institutions, and driven by fundamentals.
Powell's dovish stance provided the opportunity, ETFs provided the momentum, and Ethereum's own ecosystem provided the structure. The three combined to create one of the most credible breakouts in cryptocurrency history.
This does not mean that prices will soar from here. Corrections will still occur, volatility will return, and risks remain. But the current situation is very clear: Ethereum is not only keeping pace with Bitcoin but is also leading the market into the next phase of the cycle.
For traders, this means adapting to new trends. For investors, it means recognizing that the world's second-largest crypto asset has just proven it can break records under the right conditions.
For the entire market, this means that the cycle has truly entered the next phase.
