Source: Crypto Compound
Translation: Shaw Golden Finance
Ethereum has officially entered the price discovery phase. The second-largest cryptocurrency by market capitalization has broken through the historical high of $4,885 set in 2021, briefly rising above $4,900 during intraday trading, laying the groundwork for what could be a decisive chapter in this cycle. Unlike the price surges of many cryptocurrencies in the past, this breakthrough is not merely speculative—it is driven by a shift in macroeconomic policy, institutional demand brought about 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 for the future.
Macro Liquidity Tailwind
Market operations rely on liquidity, and last week, Jerome Powell's remarks were exactly what risk assets wanted to hear. During his speech at Jackson Hole, the Federal Reserve Chairman acknowledged the rising risks to employment and hinted that interest 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 through its highs.
ETF Inflows: A New Demand Engine
One of the most significant structural developments 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 billions of dollars, with daily additions exceeding hundreds of millions. Total assets under management have surpassed $12 billion, with over 6 million ETH currently held in ETFs. This capital is unlikely to return to exchanges in the short term—it is locked up, reducing the tradable supply.
Earlier this year, the launch of Bitcoin ETFs also triggered a similar demand shock. Now, Ethereum is experiencing its own structural buying, and the market is responding accordingly.
Ethereum vs. Bitcoin: Rotation Trading
In this cycle, Bitcoin plays the role of digital gold—stable, conservative, and the first stop for institutional investors dipping their toes into cryptocurrency. However, once liquidity turns positive, investors typically shift towards more liquid assets.
Ethereum is a prime example of this. ETH is seen as a "leveraged beta" of liquidity—it responds more to capital flows than BTC, is more closely connected to applications, and has stronger cyclicality. The ETH/BTC ratio has climbed to an annual high, reigniting discussions about whether Ethereum's market cap can ultimately surpass Bitcoin's.
Regardless of whether a reversal occurs, what matters is that investors believe Ethereum has more explosive potential at this stage of the cycle.
Leverage and Liquidations
The original volatility of price movements is not only about fundamentals but also about positions. Before the Jackson Hole meeting, leverage across exchanges had risen significantly. When Powell made his dovish remarks, ETH prices soared, forcing shorts to cover.
The result was that liquidations exceeded $200 million within hours, most of which were ETH. This short squeeze is reflexive—liquidations push prices higher, leading to more liquidations, creating a cycle. In the short term, it amplifies market volatility but also clears weak positions, resetting the market to return 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:
Layer 2 Growth: Networks like Arbitrum, Optimism, and Base are processing more transactions than Ethereum's base layer while paying ETH fees.
Total Value Locked: Decentralized finance (DeFi) activity has rebounded strongly, with total value locked (TVL) climbing back above $60 billion.
Enterprise Adoption: Upgrades like Pectra can reduce fees 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. The more active it is, the more ETH is burned, leading to tighter supply during bullish market phases.
These fundamental elements build a narrative that Ethereum (ETH) is not just a speculative token—it is a pillar of an evolving financial system.
Psychology of New Highs
The significance of breaking through historical highs goes 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 this ceiling has been broken, prices are no longer under pressure from supply above.
This opens the door to price discovery, during which the psychology of FOMO (fear of missing out) becomes a driving force. Momentum funds rush in as models trigger on new highs. Retail investors notice the headlines and seek participation opportunities. Even institutions that ignored cryptocurrency a year ago now face pressure to explain why they haven't included ETH in their asset allocations.
In the market, psychological factors are often as important as mathematical ones. Currently, market sentiment has clearly turned bullish.
Global Macro Cross-Influences
Ethereum is not traded in isolation—it moves with global market fluctuations. 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 may pull back.
Treasury Yields: Yields below 4.2% will support risk assets. If yields rise back to 5%, trouble may ensue.
Stock Market: The Nasdaq and S&P indices remain strong. If the stock market continues to rise, ETH may follow suit.
Currently, all three forces tend to support. However, they can shift quickly, and cryptocurrencies can respond immediately.
Emerging Risks
Every rebound comes with risks. Ethereum's breakout momentum is strong, but it is not invulnerable. Major risks include:
Federal Reserve Hawkish Stance: If inflation accelerates again, Powell may be forced to change policy direction. This would quickly deplete liquidity.
ETF Fatigue: Early inflows have been 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 significant squeeze, funding rates and open interest may overheat again, making ETH susceptible to sharp corrections.
Recognizing these risks does not mean abandoning a bullish outlook—it means maintaining a realistic attitude.
Analyst Expectations
Following Ethereum's breakout, several large institutions have raised their price targets. Some believe $5,000 is imminent. Others expect that if ETF inflows continue and the Federal Reserve cuts rates, it could reach $7,500 by the end of the year. More aggressive predictions 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 rally is not purely speculative—it is supported by structural capital flows.
What to Watch Next
Here are the key points to focus on in the coming weeks:
Support Levels: $4,100 is the recent strong support level. Staying above this level could allow the upward trend to continue.
ETF Inflow Data: Daily data will reveal whether institutional investors are still actively buying.
Macro Data: Employment reports, inflation data, and the next Federal Reserve 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 align, Ethereum not only has the potential to maintain its breakout momentum but also to expand into a new, higher range.
The historical high set by Ethereum is not just a number. It signifies that this asset has evolved into a significant component of the financial system, influenced by macroeconomic factors, supported by institutions, and driven by fundamentals.
Powell's dovish stance provided the opportunity, ETFs provided the momentum, and Ethereum's own ecosystem gave it structure. Together, these elements have created one of the most credible breakouts in cryptocurrency history.
This does not mean prices will soar from here. Corrections will still occur, volatility will return, and risks remain. But the current situation is very 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 its next stage.
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