Assuming a liquidation probability of 0.1%, the total probability of liquidation after 1,000 transactions reaches 63%, and after 2,000 transactions, the probability is 87%. The probability of liquidation is merely a theoretical assumption; in actual operations, the price trend probabilities are usually normally distributed, and with leverage...
The probability of liquidation increases exponentially with leverage, meaning that the probability of liquidation with 10x leverage is much higher than with 5x leverage.
Assuming a transaction fee of 0.1% and a win rate of 50%, after 1,000 transactions, the principal is likely to be zero.
Assuming you have $10,000, if you gain 50% on your first trade and then lose 50% on your second, you will have $7,500 left. Assuming you lose 50% on your first trade and gain 50% on your second, you will also have $7,500 left.
Assuming you lost 90% on one trade, you would need a 900% return to break even.
Regarding the warehouse method mentioned in the comments section
Setting stop-loss lines is essentially no different; both reduce risk while also lowering returns. Assuming you open a position with 10% of your capital each time, you would need to be liquidated 10 times to lose everything, but your returns would also be significantly reduced.
Setting stop-loss lines may lead to missing out on significant trends due to minor fluctuations, making it easy to chase highs and cut losses, which also increases trading frequency (and transaction fees), reducing returns. Moreover, in extreme market conditions, stop-loss orders may not be executed, leading to liquidation (e.g., the oil treasure incident).
For most retail investors, they often stop profit-taking at 20%, leading to continuous missed opportunities, while they are reluctant to stop losses at 20%, often thinking to wait and see, but waiting leads to a bottomless abyss. I have two friends in futures trading who have encountered situations where they lost millions due to being liquidated.
The above points are primarily aimed at retail investors. In the long run, in the stock market, the proportion of retail investors making a profit is about 10%, while in the futures market, it's around 3%
For large funds (main players), it can almost be seen as unlimited capital supply; these are not issues, and the main players can see the retail investors' cards and influence the trend curve, giving them a much higher win rate compared to retail investors.
For some retail investors, investing their salary every month can also be seen as unlimited capital supply; this is called 'the growth cycle of retail investors.'
ETFs are flooding in, but why is Ethereum's price 'playing dead'??
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1. Opening suspense, arousing curiosity
Recently, there has been a phenomenon in the cryptocurrency market that is particularly puzzling. According to data from SoSoValue, last week, Ethereum spot ETFs saw a net inflow of $420 million, with all nine ETFs showing no net outflows. Among them, BlackRock's ETHA had a net inflow of $287 million, with a historical total net inflow exceeding $4.4 billion, and Fidelity's FETH also garnered $97.28 million in net inflows, reaching a historical total net inflow of $1.51 billion. Logically, with such a significant amount of capital flowing into Ethereum spot ETFs, ETH's price should have increased, right? But the reality has been shocking; ETH's price remains unchanged as if it were a stagnant pool, completely unaffected by this massive inflow of funds. What is the reason behind this? What factors are controlling all of this? Today, let's delve into the analysis.
2. Data presentation, highlighting contradictions
To give everyone a more intuitive sense of this contrast, let's first look at the specific data. In terms of fund inflow, the performance of Ethereum spot ETFs has been remarkable. In the past period, its fund inflow data has been steadily positive. Besides the $420 million net inflow mentioned at the beginning last week, tracing back, on November 13, the total net inflow for Ethereum spot ETFs was $147 million, recording net inflows for six consecutive days, with Fidelity's ETF FETH leading with a $102 million single-day net inflow, accumulating a net inflow of $775 million; BlackRock's ETF ETHA had a net inflow of $35.6273 million, with a total net inflow of $1.706 billion. In the week from November 11 to November 15, the weekly net inflow for Ethereum spot ETFs reached $515 million, with BlackRock's ETHA weekly net inflow at $287 million and Fidelity's FETH weekly net inflow at $199 million.
Now, let’s take a look at ETH's price trend. It’s a stark contrast. During this period of significant fund inflows into Ethereum spot ETFs, ETH's price did not experience the expected rise. By checking professional cryptocurrency market websites, we can see that ETH's price curve has remained relatively stable, even somewhat weak. For example, in recent months, even on days with substantial net inflows into Ethereum spot ETFs, ETH's price fluctuated within a relatively narrow range without showing a clear upward trend. Sometimes, in the days following significant inflows into ETFs, not only did ETH's price not rise, but it even experienced slight declines, disappointing many investors.
3. In-depth analysis, exploring the causes
(1) Market supply and demand perspective
Potential selling pressure: Factors like Layer 2 bring potential selling pressure to ETH. Take Layer 2 sequencer revenues as an example; this has been a controversial topic. Sequencers play a key role in Layer 2, collecting user transactions, packaging them in order into batches, providing immediate transaction confirmations to users before finalizing on-chain, and compressing transaction data for submission to Layer 1, reducing gas costs. In the ideal vision of decentralization, the operation of sequencers should trend towards decentralization. However, in reality, almost all Layer 2 sequencers are operated by development teams. Why? Because operating a sequencer is a lucrative business, with revenue sources including transaction fee spreads, MEV capture, and interest from capital deposits. Previous data showed that on February 4, due to collective market fluctuations, Arbitrum collected $1.04 million in fees on Layer 2, with the final settlement cost to Layer 1 being less than $20,000, earning over a million dollars from transaction fee spreads in a single day. This has raised questions, with some criticizing Layer 2 for profiting significantly from continuously selling sequencer revenues, becoming a parasite to Ethereum. Additionally, Base, as the most active Layer 2 network in the Ethereum ecosystem, has been accused of transferring all sequencer revenues to Coinbase since its independent launch, even raising suspicions that these ETH may have been sold. This potential selling pressure undoubtedly casts a shadow over the upward price movement of ETH.
Demand not effectively activated: Although there has been a significant inflow of funds into Ethereum spot ETFs, the actual demand for ETH in the overall market may not have met expectations. From the perspective of investor enthusiasm, despite the presence of ETFs as an investment channel, many investors may still be on the sidelines. The cryptocurrency market itself is fraught with uncertainty, and previous market volatility has left some investors wary, making them reluctant to increase their investment in ETH easily. Looking at the actual operations after institutions entered the market, some institutions have entered through ETFs but have not further driven the actual demand for ETH. For example, some institutions may only treat ETFs as a small part of their asset allocation and have not truly engaged in the building and development of the Ethereum ecosystem, failing to stimulate more related business demand for ETH, which has caused the inflow of funds into ETFs not to effectively convert into upward pressure on ETH prices.
(2) Technical development perspective
Technical bottlenecks and doubts: Ethereum currently faces some technical issues, with the scalability problem being particularly prominent. As the Ethereum ecosystem continues to develop, the number of users and applications is increasing, leading to severe network congestion and high transaction fees. Although Ethereum has been working hard to upgrade, such as transitioning from Proof of Work (PoW) to Proof of Stake (PoS) and the Cancun upgrade, these upgrades have also brought new doubts. For instance, after the Cancun upgrade, although Layer 2 fees have significantly decreased, improving user experience and creating more application scenarios, Ethereum L1 revenue has seen a sharp decline. Data from Tokenterminal shows that Ethereum L1's daily revenue dropped from $28.45 million to about $1.1 million, a staggering decline of 96.1%. This has raised doubts in the market about Ethereum's future value capture ability, affecting investors' judgments about its future value, and consequently having a negative impact on the price of ETH.
Competition from other public chains: The rapid development of other public chains has also placed immense competitive pressure on Ethereum. Take Solana, for instance; it performs exceptionally well in terms of performance, with fast transaction processing and low transaction fees, attracting many developers and projects. Some emerging NFT projects and DeFi applications have chosen to build on Solana, diverting users and capital that might have been on Ethereum. According to DappRadar data, Ethereum's transaction volume has decreased by 38%, while the transaction volumes of BNB Chain and Solana have significantly increased. Additionally, some public chains continue to innovate, launching unique features and application scenarios, further capturing market share. This competitive landscape has made Ethereum's market advantages less apparent, putting downward pressure on its price.
(3) Policy and regulatory perspective
Global regulatory uncertainty: The regulatory policies for cryptocurrencies have been changing across different countries and regions, creating significant uncertainty in the Ethereum market. In the U.S., regulatory agencies have had a rather vague stance on cryptocurrencies, and the definition of Ethereum's securities attributes remains unclear, causing many institutional investors to hesitate before entering the market. In some other countries, there are restrictions on cryptocurrency trading, while others have strengthened regulations on cryptocurrency companies. This inconsistency and uncertainty in global regulatory policies have led investors to worry about Ethereum's future development, making them reluctant to invest heavily and affecting the price of ETH.
Slow compliance progress: The compliance process of the Ethereum ecosystem has encountered numerous obstacles. There are many projects and applications on Ethereum, and it is challenging to ensure that all these projects meet the regulatory requirements of different regions. For instance, in terms of anti-money laundering and investor protection, some projects within the Ethereum ecosystem find it difficult to meet strict regulatory standards. The slow progress of compliance has limited Ethereum's ability to attract traditional financial institutions and capital, impacting investor confidence. As long as compliance issues remain unresolved, it means that investing in Ethereum carries significant legal risks, which has suppressed market demand for ETH to a certain extent, making it difficult for prices to rise.
4. Future outlook, rational analysis
Looking ahead, the price trend of ETH is full of uncertainty. From an optimistic perspective, if Ethereum can successfully resolve the current technical issues, further enhance network performance and security, and ensure that projects within the ecosystem progress smoothly in compliance, gaining recognition from more regulatory agencies, then the price of ETH may rise. As global acceptance of cryptocurrencies gradually increases, more capital may flow into the Ethereum market, driving its price upward. Some analysts even suggest that when Ethereum drops to a certain price, it may present a 'buy on dips' opportunity, laying the foundation for a significant rebound in the future, with a bullish target set at $7,000.
However, the pessimistic scenario cannot be ignored. If Ethereum encounters significant obstacles in its technological upgrades or if global regulatory policies tighten further, causing serious damage to the Ethereum ecosystem, then ETH's price may continue to languish, even facing further downside risks. The competition from other public chains may also persist, further weakening Ethereum's market share and making it challenging for its price to rise.
For investors, it is essential to rationally view the price fluctuations of ETH and market risks. Before investing, you should fully understand Ethereum's fundamentals and market dynamics, formulating a reasonable investment strategy based on your risk tolerance and investment goals. Don't let short-term market fluctuations sway you; instead, maintain a long-term investment perspective. After all, the cryptocurrency market is full of uncertainties, and maintaining rationality and calmness is crucial to navigating this market steadily.
5. Interactive conclusion, guiding discussions
Well, that's the analysis of why Ethereum spot ETFs continue to see inflows while ETH prices remain stagnant. What are your views on the future price trends of Ethereum? Do you think Ethereum can return to its peak and achieve significant price increases? Feel free to share your thoughts in the comments section; let’s discuss together. If you find this article helpful, don't forget to like and share it, so more people can stay updated on the dynamics of the cryptocurrency market.
