Why is Ethereum going down today?

Since March 2022, in response to rising inflationary pressures, the Federal Reserve initiated a 17-month rate hike cycle, increasing rates by a cumulative 525 basis points. The last rate hike in this cycle brought the federal funds rate to 5.25%–5.50%, the highest level in 23 years. However, with the U.S. economy slowing, the labor market weakening, and inflation gradually coming under control, the Fed made the rare decision to cut rates by 50 basis points in September 2024, marking the beginning of a new monetary easing cycle.

Easing monetary policy typically leads to increased market liquidity. As borrowing costs decrease, capital becomes more accessible, particularly for higher-risk asset classes like cryptocurrencies, which offer the potential for greater returns.  Historically, the crypto market has shown strong upward momentum whenever the Federal Reserve adopts easing policies. Following the rate cut, Bitcoin quickly surged past the $60,000 support level, briefly breaking $62,000, while ETH crossed the $2400 mark. This surge indicates that expectations of increased liquidity are driving investor demand for cryptocurrencies, especially as a weakening dollar leads investors to view Bitcoin and Ethereum as effective hedges against inflation and currency devaluation.

The 50-basis-point rate cut by the Fed signals a significant shift in U.S. monetary policy, leading to considerable volatility across global financial markets.  For the crypto market, this rate cut presents short-term growth opportunities, particularly for Bitcoin, altcoins, DeFi projects, and stablecoins, which stand to benefit from increased liquidity and a higher risk appetite.

Overall, while the Federal Reserve's interest rate cuts offer new opportunities for the crypto market, investors should remain cautious of potential risks amidst the market growth. Nevertheless, with increased liquidity, ongoing technological innovation, and growing institutional participation, the future of the crypto market remains promising.

The U.S. Securities and Exchange Commission (SEC) has officially approved applications for Ethereum spot ETFs from several companies,  including 21Shares, Bitwise Asset Management, BlackRock, Franklin Templeton, Fidelity Investments, VanEck, and Invesco. This approval, following the SEC's earlier endorsement of Bitcoin spot ETFs in January 2024, marks another significant milestone in the cryptocurrency space, reflecting ongoing innovation and a maturing regulatory environment for crypto assets.

The launch of Ethereum ETFs is expected to trigger a surge in market demand, potentially leading to a supply shortage of Ethereum. In a scenario of tight supply, the price of ETH may become increasingly sensitive to capital inflows, as the locked ETH supply may struggle to meet new market demands. This could further tighten supply and drive ETH prices higher,  signaling a potential "turning point" for cryptocurrency price surges.

Beyond its impact on ETH, the introduction of Ethereum spot ETFs is likely to have a positive ripple effect on the altcoin market.  Since most altcoins are traded in pairs with ETH on decentralized exchanges (DEXs), an increase in ETH's price would likely lead to a corresponding rise in altcoin prices.  Furthermore, some market analysts believe that the approval of Ethereum spot ETFs sets a strong precedent for other cryptocurrencies seeking ETF approval in the future.

Another important implication of the Ethereum spot ETF approval is the shift in U.S. regulators' attitudes toward cryptocurrencies. This move is widely viewed as a positive development for the regulatory landscape surrounding crypto assets.

The Ethereum Dencun upgrade has been officially deployed on the Ethereum mainnet, marking a significant advancement nearly a year after the Shanghai upgrade in April 2023. The major upgrade aims to enhance the scalability, security, and availability of the Ethereum network,  continuing its evolution and building on the successes of previous upgrades. The Dencun upgrade encompasses changes to both the execution layer (Cancun) and the consensus layer (Deneb), introducing a series of Ethereum Improvement Proposals (EIPs) designed to optimize network functionality.

While the Shanghai upgrade focused on enabling validators to unlock their staked ETH and bonuses, the core of the Dencun upgrade is the introduction of the data unit "Blob," part of Ethereum's scalability solution known as protodanksharding. This enhancement aims to significantly reduce transaction fees for Rollup-type Layer 2 networks. As a result of the Dencun upgrade, gas fees for Layer 2 networks such as Optimism and Arbitrum are expected to decrease dramatically, with some developers estimating a reduction of up to 75%. This fee reduction will directly benefit regular users and dApp applications transacting on these networks, facilitating the large-scale adoption of the Ethereum ecosystem by both users and dApps. It will further promote the prosperity of Rollup ecosystems like Optimism and Arbitrum. With the completion of the Dencun upgrade, nine EIPs will be integrated into both the consensus and execution layers,  each serving specific functions to enhance the network's scalability, security, and user experience.

The Ethereum merge was a crucial step in the network's transition from PoW to PoS. A key focus of the Shanghai upgrade is to enable validators to withdraw ETH that has been staked in the Beacon chain's smart contract. Following this upgrade, users can finally access and withdraw their staked funds within the PoS mechanism. After more than two years, stakers are now able to claim their accumulated bonuses, withdraw their staked positions, or make changes to their staking settings.