Key Points:
Despite the recent growth of the Layer 2 ecosystem reducing base fees and promoting Ethereum's application in tokenization and stablecoins, ETH has still fallen to a four-month low.
With global risk easing and new liquidity entering the market, ETH may rebound, with prices expected to move back towards $3900.
ETH dropped below $3000 on Monday, reflecting a risk-off shift across the entire industry, as traders worry that the bull market may have ended after a 40% pullback from the historical high of $4956 in August.
ETH's performance is closely tied to the altcoin market, indicating a lack of asset-specific catalysts, or that traders have shifted their focus to broader macroeconomic factors. Analysis shows that if ETH faces significant competitive pressure or a weakening of fundamentals, it should lag behind altcoins, but this situation has not occurred yet.
Analysts point out that the decline in cryptocurrency is mainly due to heightened concerns about the global growth outlook. Following the U.S. government shutdown and the implementation of new import tariffs, consumer sector earnings have been weak, and the outlook for the AI industry is also in question. Data centers are currently facing higher operating costs and energy constraints, although this business area remains highly profitable.
Over the past month, the demand for bullish leverage on ETH has remained low, with futures premiums staying below the 5% neutral level. This market hesitation partly stems from the impact of market pressures on companies building ETH reserves, including Bitmine Immersion (BMNR US), SharpLink Gaming (SBET US), and The Ether Machine (ETHM US).
These companies, which focus on ETH reserves through debt and equity issuance, currently hold unrealized losses as their stock prices trade below the net asset value, including cryptocurrency holdings. Even without an imminent forced sell-off risk, investor interest in the industry has significantly declined, reducing demand for new debt and leading to gradual dilution of current holders' equity.
Weak on-chain data for ETH has clearly dampened investors' bullish sentiment. Reduced network activity has directly led to a decline in ETH demand and increased market supply. Industry experts note that Ethereum's burn mechanism can only have a substantial effect when the demand for underlying layer data rises, so the slowdown in decentralized application usage has a net negative impact on ETH staking.
The total value locked (TVL) in the Ethereum network has dropped to a four-month low of $74 billion, shrinking by 13% compared to 30 days ago. Ethereum's decentralized exchanges (DEX) recorded only $17.4 billion in trading activity over the past seven days, a significant decline of 27% from last month. Although Ethereum still maintains a clear lead in terms of deposit size, it faces increasing competitive pressure in the trading volume arena.
Critics may argue that BNB Chain and Solana are more centralized, while Ethereum excels when considering the Layer 2 ecosystem. Scaling solutions like Base, Arbitrum, and Polygon have greatly enhanced Ethereum's capacity but have also raised concerns about transaction fees. Since Rollups batch process transactions independently of the underlying layer, they significantly reduce the demand for underlying transaction fees.
However, the shift of activity to Layer 2 is far from a threat. Market analysts believe that the rise of Ethereum's scaling ecosystem has actually strengthened its leading position in the tokenization of real-world assets (RWA) and decentralized stablecoin systems (such as Sky, formerly MakerDAO). The Base platform alone processed nearly 102 million transactions in the past seven days, a figure that can even compete with networks like Solana, which have more users and deposits.
The future trajectory of ETH will largely depend on the reduction of global socio-political uncertainties, especially as the U.S. faces pressure from the ongoing expansion of government debt. In the long run, central banks are likely to need to increase liquidity and support their economic development, with ETH expected to be a major beneficiary of such capital inflows. This shift in market environment may be sufficient to drive ETH to retest the $3900 price level.
Related: Tom Lee: Ethereum (ETH) will enter the "same supercycle" as Bitcoin (BTC)
This article does not constitute any investment advice or recommendation. All investment and trading activities carry risks, and readers should conduct their own research before making decisions.
Original article: “Ethereum (ETH) Falls Below $3000, Hits Four-Month Low: Is the Bull Market Over?”
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