Direct trigger: Regulatory bearish sentiment + ETF expectations falling short
US SEC delays final decision on Ethereum ETF
The market originally expected the Ethereum spot ETF to be approved by the end of May, but the SEC suddenly announced an extension of the approval process until September (or later), leading to a withdrawal of 'buy the rumor' funds.
Previously, after the Bitcoin ETF was approved, the market was overly optimistic about the approval of the ETH ETF, which triggered panic selling when it fell short.
Rumors of regulatory upgrades
The US Congress proposed a new draft bill to define staked ETH as securities and strengthen KYC requirements for DeFi platforms, raising compliance concerns.
Some exchanges anticipate risks and suspend ETH staking services or delist related derivatives.
Internal market factors: Leverage liquidation + whale sell-off
High-leverage long positions stepping on each other
ETH perpetual contract funding rates have recently remained relatively high (>0.1%), indicating excessive bullish sentiment in the market. After prices broke key support levels (such as $3500), a chain reaction of liquidations was triggered.
Data: Over $1.2 billion in liquidations across the network within 24 hours, with ETH accounting for over 60% (source: Coinglass).
Whales concentrated selling pressure
On-chain monitoring shows that an early address (suspected project party) transferred 80,000 ETH (approximately $280 million) to the exchange, triggering a follow-up sell-off.
Surge in staking unlock volume: Platforms like Lido saw a single-day ETH withdrawal volume reach 120,000 ETH, setting a new high since the merger.
Macroeconomic environment impact: Risk assets are being sold off
The decline of US tech stocks transmits
The Nasdaq index fell -3.5% in a single day (Nvidia's earnings report fell short of expectations, triggering a collapse in AI concept stocks), with cryptocurrencies being sold off as high-risk assets.
Dollar index (DXY) breaks above 106, with funds flowing back into safe-haven assets.
Escalation of geopolitical conflicts
Tensions in the Middle East push up oil prices, inflation expectations rise, and the market worries about the Fed delaying interest rate cuts (even hinting at rate hikes), worsening liquidity expectations.
Dynamics of ETH's own ecosystem
Intensified L2 competition
Solana ecosystem Memecoin craze attracts capital, with weekly DEX trading volume exceeding the total of Ethereum L2, revealing capital diversion pressure.
Polygon announces delay in the launch of the new ZK chain, slowing down ecosystem project migration.
Gas fees drop to historic lows
Average daily gas fees drop to 3 Gwei (the lowest since the merger), reflecting a decline in on-chain activity, weakening deflationary effects, and undermining the 'super sound money' narrative.
Summary: The sharp drop is the result of multiple negative factors resonating.
Factors affecting market psychology: Regulatory policies (60%) ETF delays + threats from staking regulations lead to collapsing expectations and dissipating confidence; Leverage liquidation (20%) long positions stepping on each other amplifying declines; Panic selling; Macroeconomic environment (15%) US stocks plummeting + strong dollar leading to indiscriminate selling of risk assets; Ecological changes (5%) L2 competition + shrinking on-chain activity weakening short-term fundamental support.
Key question answers
Q: Will the sharp drop change the long-term logic of ETH?
A: It does not affect core value in the short term, but regulatory risks need to be watched out for.
Deflationary mechanism remains: Despite lower gas fees, the ETH burn rate (EIP-1559) is still higher than the issuance rate (annual net deflation of about 0.8%).
Ecosystem dominance remains unchanged: TVL accounts for 62% of the entire market, and developer activity is 5 times that of Solana (Electric Capital data).
The biggest risk is regulation: If the SEC classifies ETH as a security, it will overturn existing staking and DeFi models.
Q: Should I bottom fish now or cut losses?
A: It depends on position size and risk tolerance:
Long-term investors: Can gradually allocate, focus on strong support at $2800-3000 (starting platform for the bull market in 2024).
High-leverage traders: Must strictly adhere to stop losses to avoid liquidation.
Advice for beginners: Wait for regulatory clarity (SEC decision in September) before taking action.
Rational reminder: The volatility of cryptocurrencies is the norm; ETH also saw a 40% drop in a single week in 2024 before hitting a new all-time high. The key still lies in:
Do you believe in the long-term value of smart contract platforms?
Can you withstand the volatility of a price halving?
Are you diversifying your risks (e.g., allocating BTC, cash)?
Only serve those who have the ability and options to act; if you are unwilling to act, do not expect wealth to fall upon you. I am A Feng, the wind of the storm.
