Source: Crypto Compound, compiled by Shaw Golden Finance
Ethereum has officially entered the price discovery phase. The second-largest cryptocurrency by market capitalization has broken through its historical high of $4,885 set in 2021, briefly rising above $4,900, laying the groundwork for this cycle, which may be pivotal. Unlike the price surges of many past cryptocurrencies, this breakout is not merely speculative—it is driven by a shift 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 inflows into the market.
Let's analyze why this rebound is important, the driving factors behind it, and the risks that still exist in the future.
Macroeconomic liquidity tailwind
Market operation relies on liquidity, and last week's comments from Jerome Powell were exactly what risk assets wanted to hear. During his speech at Jackson Hole, the Fed chair acknowledged the rising risks to employment 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's performance resembles that of 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 funds without needing to interact with wallets or exchanges.
In just a few weeks, inflows have surged to tens of billions of dollars, with daily increases exceeding hundreds of millions. Total assets under management have exceeded $12 billion, and over 6 million ETH are currently held in ETFs. These funds will not return to exchanges in the short term—they are locked up, 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 is reacting accordingly.
Ethereum versus Bitcoin: Rotating trades
In this cycle, Bitcoin plays the role of digital gold—steady, conservative, and the first stop for institutional investors trying out cryptocurrency. But once liquidity turns positive, investors typically shift towards more liquid assets.
Ethereum's situation is just that. ETH is seen as a liquidity 'leveraged beta'—more responsive to capital flows than BTC, more closely connected to applications, and more cyclical. The ETH/BTC ratio has climbed to yearly highs, reigniting discussions about whether Ethereum's market capitalization can ultimately surpass that of Bitcoin.
Regardless of whether a reversal occurs, it is important for investors to believe that Ethereum is more explosive in the current cycle phase.
Leverage and liquidation
The raw volatility of price movements is not only about fundamentals but also about positions. Ahead of the Jackson Hole meeting, leverage ratios across exchanges surged. When Powell made dovish comments, ETH prices soared, forcing shorts to cover.
The result is that over $200 million was liquidated within hours, most of which was ETH. This short squeeze is reflexive—liquidation drives prices higher, leading to more liquidations, and so on. It amplifies market volatility in the short term but also clears weak positions to reset the market, returning it 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 trends stand out:
Layer2 growth: Networks like Arbitrum, Optimism, and Base are processing more transactions than Ethereum's base layer while paying ETH fees.
Total locked value: Decentralized finance (DeFi) activity has rebounded strongly, with total locked value (TVL) climbing back above $60 billion.
Enterprise adoption: Upgrades such as Pectra can reduce costs 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 tighter supply during bullish phases.
These foundational elements build a narrative that Ethereum (ETH) is not just a speculative token—it is a pillar of the evolving financial system.
The psychology of new highs
The significance of breaking the historical high goes far beyond clearing technical resistance—it also 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 overhead supply.
This opens the door for price discovery, during which the FOMO (fear of missing out) mentality becomes a driving force. Momentum funds rush in, as models trigger at new highs. Retail investors take notice of the headlines, seeking participation opportunities. Even institutions that ignored cryptocurrencies a year ago now face pressure to explain why they haven't included ETH in their asset allocation.
In the market, psychological factors are often as important as mathematical ones. Currently, market sentiment has clearly turned bullish.
Global macro cross-impacts
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 could correct.
Treasury yields: Yields below 4.2% will support risk assets. If yields rise back to 5%, trouble will ensue.
Stock market: The Nasdaq index and S&P index remain strong. If the stock market continues to rise, ETH may rise along with it.
Currently, all three forces tend to support. But they can change quickly, and cryptocurrencies can react immediately.
Emerging risks
Every rebound comes with risks. Ethereum's breakout momentum is strong, but not invincible. Major risks include:
Fed'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 is uncertain whether demand can be sustained. We have 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 intensify.
Excessive leverage: After experiencing a large squeeze, funding rates and open interest may overheat again, making ETH susceptible to significant corrections.
Being aware of these risks does not mean abandoning a bullish view—it means maintaining a realistic attitude.
Analysts' expectations
Following Ethereum's breakout, several large institutions have raised their target prices. Some believe $5,000 is imminent. Others predict that if ETF inflows continue and the Fed cuts rates, it could reach $7,500 by year-end. More aggressive forecasts suggest it could hit $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 has cleanly broken through resistance indicates that this rise is not purely speculative—it is supported by structural capital flows.
What to watch next
Here are the key points to watch in the coming weeks:
Support level: $4,100 is a recent strong support level. Staying above this level will allow the upward trend to continue.
ETF inflow situation: Daily data will reveal whether institutional investors are still actively buying.
Macroeconomic data: Employment reports, inflation, and the next Fed 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 remain consistent, Ethereum not only has the potential to maintain its breakout momentum but could also expand into a new, higher range.
The historical high set by Ethereum is not just a number. It indicates that this asset has evolved into an important component of the financial system, influenced by macroeconomic factors, supported by institutions, and driven by fundamentals.
Powell's dovish stance provided the opportunity, the ETF provided the momentum, and Ethereum's own ecosystem provided the structure. Together, these factors created one of the most credible breakouts in cryptocurrency history.
This does not mean that prices will skyrocket from here. Corrections will still occur, volatility will return, and risks still exist. But the current situation is quite 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 aligning with the new trend. For investors, it means recognizing that the world's second-largest crypto asset has just proven it can break records in the right environment.
For the entire market, this means the cycle has truly entered the next phase.
