This morning, Ethereum $ETH quickly plummeted due to a social media event, triggering short-term panic in the market. Although the rhetoric conflict between Musk and President Trump caused severe fluctuations, from a fundamental perspective, such events are essentially emotional shocks with limited impact, and asset prices are expected to technically recover in the short term. However, what truly deserves attention is not the short-term volatility caused by such superficial news, but the gradual deterioration of the global macroeconomic and policy environment, which is building structural bearish risks for risk assets like Ethereum.
This article will conduct an in-depth analysis from three key aspects: 1) the reasons and limitations of short-term recovery, 2) the deterioration of the medium-term macroeconomic environment, 3) the structural weakening of on-chain and funding data.
1. Short-term recovery is expected, and emotional declines do not indicate a fundamental collapse.
The direct trigger for this round of Ethereum's sharp decline was the conflict between Musk and Trump on social platforms regarding 'power, censorship, and party structures', with some investors concerned about the spillover of political risks into the Web3 regulatory environment. However, this impact is highly incidental and short-term.
There have been no significant updates to regulatory policies, and the SEC has not yet adopted a hawkish stance on Ethereum spot ETFs; statements from Musk and Trump have not involved specific regulatory or sanction measures; on-chain activity remains fundamentally stable: transaction numbers for L2s such as Arbitrum and Optimism and DeFi locked volumes have not experienced severe capital flight. Therefore, the market's reaction primarily stems from the 'fragile emotional chain' triggered by social media. Once emotions are digested and technicals find support, prices are expected to rebound and recover, but the key issue is: even if there is a short-term recovery, the medium-term risks in the market remain severe.
2. The risks of macro and trade wars are intensifying, and a medium-term storm is brewing.
Interest rate policies are highly uncertain, risk assets are still in a capital vacuum period, and core inflation in the U.S. remains above the Fed's target, leading to increased divergence in the market regarding the timing of interest rate cuts; Fed officials have repeatedly emphasized that they will only loosen up once 'substantial signs of slowdown' are seen; U.S. Treasury yields are rising again, and real interest rates remain high, putting natural pressure on cryptocurrency valuations. This situation of 'capital unwilling to take risks, but with no high returns on risk-free assets' will long-term suppress the appeal of Ethereum as a highly volatile asset. The escalation of trade wars will further disrupt global asset pricing, with the U.S. set to impose tariffs on high-tech and new energy products from the EU, affecting the overall supply chain and corporate profit expectations; trade tensions increase volatility in the capital markets, leading to rapid compression of liquidity for risk assets; investors tend to turn to conservative assets like cash in dollars, gold, and U.S. Treasuries, further weakening the capital support for cryptocurrencies. It is worth noting that the crypto market is becoming increasingly sensitive to global economic sentiment; once the market shifts to 'risk-off mode', assets like ETH will be the first to be affected.
3. Structural weakening of on-chain and funding data is not something that can be fixed overnight.
Even if prices experience a short-term rebound, the weakness of on-chain and market liquidity cannot be overlooked: the market capitalization of stablecoins continues to decline, indicating that funds have not entered the market to fill the gap; daily trading volume of ETH and Gas fees are on a downward trend, reflecting weak actual application and demand; the total value locked (TVL) in DeFi has dropped by about 30% from its high, indicating a clear decline in risk appetite; NFT and on-chain gaming activities have shown double-digit percentage declines for several consecutive weeks, while options and contract market data show an increase in bearish positions and a decrease in leverage, suggesting that institutions and experienced traders are cautious or even turning pessimistic about future trends.
Market confidence is 'internally losing warmth', and short-term recovery cannot cover up medium-term cracks.
While the conflict between Musk and Trump is certainly eye-catching, the more important risks for investors who truly care about capital allocation and asset structure are not in the rhetoric but in the environment – tightening dollar liquidity, policy chaos, trade chain tensions, and declining on-chain activity; these are all structural problems that cannot be resolved in the short term.
Therefore, if one is blindly optimistic merely due to short-term emotional recovery, they may instead be swallowed by a deeper wave of correction. For professional investors, what should be considered now is how to establish effective hedging positions, carefully assess downside risks, and wait for real fundamental reversal signals to appear before entering the market.
