Why is Ethereum going down today?
What happened to Ethereum (ETH) today?
Ethereum price is down 1.00% todayOn the afternoon of December 18, the Federal Reserve announced a 25-basis-point cut to its benchmark policy rate but hinted that the number of rate cuts in 2025 could be lower than previously anticipated.
The Fed's latest quarterly economic projections indicate that there might only be two rate cuts in 2025—down from the four projected in September and below market expectations of three prior to the meeting. This signals a more cautious approach to balancing inflation and economic growth. Additionally, Fed members revised their forecasts for personal consumption expenditures (PCE) and core PCE inflation for next year, raising them to 2.5%, up from the September projections of 2.1% and 2.2%, respectively.
Powell described this shift as a "new phase" of monetary policy, emphasizing that following the 100-basis-point rate cuts in 2024, interest rates are now much closer to a neutral stance.
Since September, long-term bond yields and mortgage rates have risen, along with a stronger U.S. dollar, reflecting tighter financial conditions. The dollar's continued appreciation poses a macro risk to Bitcoin, as a stronger dollar is often associated with a contraction in global liquidity—a scenario unfavorable for Bitcoin and other crypto assets. In fact, Fed Net Liquidity has been steadily decreasing.
During a press conference that day, in response to an Axios reporter's suggestion of a strategic Bitcoin reserve should Trump take office, Powell stated, "We [the Federal Reserve] are not allowed to own Bitcoin. The Federal Reserve Act says what we can own, and we're not looking for a law change. That’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed."
Trump has repeatedly expressed interest in creating a strategic Bitcoin reserve. In an interview with CNBC, he remarked, "We're gonna do something great with crypto because we don't want ...anybody else… but others are embracing it, and we want to be ahead."
Ethereum（ETH) price and major events timeline
AI answers to ETH's recent price rise
On the afternoon of December 18, the Federal Reserve announced a 25-basis-point cut to its benchmark policy rate but hinted that the number of rate cuts in 2025 could be lower than previously anticipated.
The Fed's latest quarterly economic projections indicate that there might only be two rate cuts in 2025—down from the four projected in September and below market expectations of three prior to the meeting. This signals a more cautious approach to balancing inflation and economic growth. Additionally, Fed members revised their forecasts for personal consumption expenditures (PCE) and core PCE inflation for next year, raising them to 2.5%, up from the September projections of 2.1% and 2.2%, respectively.
Powell described this shift as a "new phase" of monetary policy, emphasizing that following the 100-basis-point rate cuts in 2024, interest rates are now much closer to a neutral stance.
Since September, long-term bond yields and mortgage rates have risen, along with a stronger U.S. dollar, reflecting tighter financial conditions. The dollar's continued appreciation poses a macro risk to Bitcoin, as a stronger dollar is often associated with a contraction in global liquidity—a scenario unfavorable for Bitcoin and other crypto assets. In fact, Fed Net Liquidity has been steadily decreasing.
During a press conference that day, in response to an Axios reporter's suggestion of a strategic Bitcoin reserve should Trump take office, Powell stated, "We [the Federal Reserve] are not allowed to own Bitcoin. The Federal Reserve Act says what we can own, and we're not looking for a law change. That’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed."
Trump has repeatedly expressed interest in creating a strategic Bitcoin reserve. In an interview with CNBC, he remarked, "We're gonna do something great with crypto because we don't want ...anybody else… but others are embracing it, and we want to be ahead."
Bitcoin has hit its highest value ever as early results suggest Republican nominee Donald Trump might be on course to win the 2024 US presidential election.
On November 6, as the voting results of the US election came out one after another, the price of Bitcoin soared to a record high, reaching $75,363.66 at one point, surpassing the historical high of $73,798 set on March 14, and rising by more than 9.29% in 24 hours. The prices of altcoins such as Ethereum and Dogecoin also rose sharply.
In August, Trump posted a video on the X platform in which he said he planned to make the United States the "cryptocurrency capital of the planet."
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.
The Merge represents a significant milestone in the Ethereum 2.0 upgrade, marking the transition of the Ethereum mainnet from Proof of Work (PoW) to Proof of Stake (PoS). This upgrade integrates the mainnet with the Beacon chain, transforming Ethereum into a sharding chain and ending the era of energy-intensive mining. Following the merger, the Beacon chain (Eth2) was renamed the Ethereum Consensus Layer, while the Ethereum mainnet (Eth1) became known as the Ethereum Execution Layer.
Benefits of the Ethereum merger: First, reduction in energy consumption. The transition to a PoS mechanism is expected to reduce Ethereum's energy consumption by approximately 99.95%. The energy cost to operate Ethereum nodes is estimated to be around 2.62 megawatts per year. Second, it improves transaction speed. Post-merge, Ethereum's block time is anticipated to improve slightly, decreasing from an average of 13.6 seconds to 12 seconds. This change is expected to increase transaction throughput by approximately 12%.
In June 2020, Compound introduced liquidity mining for its governance token, COMP, triggering a surge in liquidity mining across the DeFi market and marking the beginning of what is now known as DeFi summer.
Users began earning incentives by lending and borrowing on Compound, with additional rewards in the form of COMP tokens leading to significant increases in annual interest rates for various tokens. This development stimulated the rise of yield farming, as users constantly switched between borrowing and lending different tokens to maximize their profits. The success of Compound also inspired numerous other protocols to distribute their tokens through yield farming, creating a plethora of yield farming opportunities.
Another major protocol to emerge during this wave was Yearn Finance, developed by Andre Cronje in early 2020. This project acted as a yield optimizer, focusing on maximizing DeFi profits by automatically switching between different lending protocols.
The culmination of DeFi summer was marked by the launch of the Uniswap token, UNI. All previous Uniswap users and liquidity providers received an airdrop valued at over $1000. Additionally, Uniswap launched yield farming programs across four different liquidity pools, attracting over $2 billion in liquidity.
During DeFi summer, key metrics within the DeFi space experienced remarkable improvements. Uniswap's monthly trading volume skyrocketed from $169 million in April 2020 to $15 billion in September 2020—a nearly 100-fold increase. The total value locked (TVL) in DeFi surged from $800 million in April to $10 billion in September, representing a more than 10-fold increase. Meanwhile, the number of Bitcoins transferred to Ethereum increased from 20,000 in April to nearly 60,000 in September—a threefold increase.
Why do cryptocurrency prices fluctuate dramatically?
Cryptocurrency market prices often exhibit high volatility. As a relatively new and immature financial market, numerous factors influence cryptocurrency prices.
What factors affect the price of cryptocurrency?
1. Market sentiment: Traders and investors' perceptions of Bitcoin's value.
2. Money flows: The movement of funds between markets or asset classes can impact cryptocurrency prices.
3. Monetary policy: Central banks can influence the flow of funds and investment behavior by adjusting interest rates.
4. Asset allocation: Investors allocate funds across various asset classes based on market conditions and future expectations.
5. Trade War: Trade disputes between countries can lead to a shift of funds toward safe currencies and assets.
6. Black Swan events: Sudden occurrences, such as cyberattacks, government interventions, or natural disasters, can prompt investors to shift their funds to safer currencies and assets.
How do these factors affect cryptocurrency prices?
1. Market sentiment: Market sentiment can shift rapidly, influenced by news, social media, and public opinion. For instance, positive news about Bitcoin or cryptocurrencies can lead to increased buying activity, while negative news may trigger selling.
2. Speculation: Many investors purchase Bitcoin with the expectation that its value will rise. This speculative trading can lead to dramatic price swings based on short-term fluctuations rather than the asset's intrinsic value.
3. Supply and demand: The total supply of Bitcoin is capped at 21 million. As interest in Bitcoin grows, demand increases. If demand exceeds supply, the price rises, and vice versa
4. Regulatory news: Government regulations can significantly impact Bitcoin prices. For instance, if a major government announces a crackdown on cryptocurrencies, it may trigger a sell-off.
5. Economic events: Events such as financial crises, currency devaluations, or recessions can significantly impact Bitcoin prices. During periods of economic uncertainty, Bitcoin is often viewed as a 'safe haven' asset, leading to increased investment in it.
6. Technological developments: Innovations within the cryptocurrency space or the Bitcoin network—such as software upgrades or forks—can also influence Bitcoin prices
7. Market liquidity: In less liquid markets, even small trades can significantly impact prices. Initially, Bitcoin's market liquidity was relatively low, but as the market has matured, it typically requires larger trades to create substantial price fluctuations.
8. Competition: The presence and performance of other cryptocurrencies can impact Bitcoin's price. For instance, if a new cryptocurrency gains attention and attracts investment, it may lead to a decline in demand for Bitcoin.
9. Macro factors: Global economic indicators, such as interest rate changes, inflation rates, and shifts in political stability, can influence investor sentiment toward assets like Bitcoin.
Post-event price performance