Ethereum is facing a wave of liquidations, and the Solana ecosystem meme trend is weakening. When will the turning point of the crypto market come?

Original article: BlockBlick

Compiled by: Yuliya, PANews

After the crypto market experienced months of dramatic fluctuations, the new episode of "BlockBlick" podcast analyzed in detail the recent dynamics of the crypto market, especially the performance of Ethereum and Solana, as well as the future direction of the entire cryptocurrency market. PANews compiled a text version of this podcast.

Ethereum: Low Prices and Ecosystem Progress

Recently, the Ethereum market has experienced dramatic fluctuations, setting a record high for daily liquidation volume. According to Coinglass data, Ethereum's long and short liquidations in one day exceeded previous major events , including the FTX crash and the Three Arrows Capital crisis. Market sentiment was extremely depressed, and Ethereum short positions on the CME futures market also hit a new high , indicating that investors lack confidence in Ethereum. Despite this, some investors took advantage of the price correction to make arrangements , and Ethereum-related ETFs attracted more than $300 million in inflows this week.

Ecological Technology Progress

Despite the weak price, Ethereum’s technical ecosystem is developing steadily:

• Transaction throughput hits new highs: The transaction processing capacity of the mainnet and Layer 2 networks has reached an all-time high, indicating that the network's scalability is increasing.
• Gas limit increase: The Ethereum mainnet's gas limit has increased by more than 20%, resulting in an increase in transactions per second (TPS) while significantly reducing transaction fees, which have fallen to a historic low over the past week. Layer 2 solutions like Base have increased the gas limit to 60 million in an effort to increase network throughput and further expand market demand.
• Growth of tokenized assets: The total value of tokenized assets on the Ethereum mainnet has exceeded $17 billion, dominating the market. Physical assets including loans, commodities, and U.S. Treasuries have been transferred to the blockchain in large quantities, with more than 80% of tokenized assets distributed on the Ethereum mainnet and its Layer 2 network.

Inflation Problem

However, low gas fees also reflect a decline in Ethereum network usage and a slowdown in ecosystem activity. For the first time since the merger, Ethereum has entered an inflationary state, and the current supply of Ethereum has exceeded the pre-merger level, which means that the number of Ethereum tokens in circulation has increased. By observing the Ultrasound Money chart, we can see that Ethereum's deflationary trend has lasted for several years, and since the emergence of Layer 2 expansion solutions, these solutions have reduced reliance on the main chain, resulting in a decrease in the amount of Ethereum destroyed, and the supply of Ethereum has gradually returned to an inflationary state.

However, Ethereum’s inflation rate is still low compared to Bitcoin and is expected to fluctuate between -1% and +1% in the future . Therefore, despite market concerns, this volatility is expected and does not mean that the long-term health of the Ethereum ecosystem is threatened.

It is worth noting that in the past week, only 1% of Bitcoin miners' income came from transaction fees , and the rest mainly depended on block rewards. Considering the mechanism of Bitcoin halving every four years, if the main network transaction volume cannot be significantly increased, miners' income may face challenges in the future.

Solana: Technical Stability and the Meme Coin Craze

Improved technical stability

Compared to Ethereum's challenges, Solana has shown strong momentum. Although its price has fallen from its all-time high of $250 to $202, the decline is relatively mild. The Solana network recently achieved an important milestone: for the first time, it has run for a full year without major failures , which is of great significance in its development history. In particular, in the past 35 days, even in the face of the peak of the meme coin craze and the release of Trump's meme coin, the network has remained stable.

According to Artemis data, Solana is far ahead in terms of the number of daily active addresses:

• Solana: 5-6 million daily active wallets
• Base: about 700,000-800,000
• Ethereum mainnet: about 400,000

These developments may affect the competitive landscape of the cryptocurrency market. Although Ethereum maintains its lead in enterprise-level applications and physical asset tokenization, Solana's advantages in performance and user activity cannot be ignored. For market participants, this competitive situation provides more diversified investment options.

The double-edged sword of the meme coin craze

The recent activity of the Solana ecosystem is partly due to the popularity of Memecoin, especially the promotion of the Pump.fun platform. Data shows that the platform can generate about 70,000 new tokens every day, and the total amount has reached 7.5 million. According to CoinMarketCap data, the total number of tokens issued is close to 11.04 million, which means that Pump.fun has a considerable market share.

However, the Memecoin craze also brought some negative effects: a large amount of funds poured into the Memecoin market, resulting in a decrease in the attention of other projects and a dispersion of market funds. In addition, many investors lost money due to the high speculation of Memecoin, further weakening market confidence. This is also an important challenge facing the current cryptocurrency market: despite the large influx of funds, most of the funds flowed to short-term, high-risk investments, lacking long-term sustainable projects. In this process, while some projects like Bitcoin and Solana have shown stable growth, other projects have difficulty in continuously generating meaningful value. This situation puts the entire market in an unsustainable state, especially for Ethereum, which remains the leader among those projects with long-term value.

Despite Solana's progress in technical stability, on-chain activity has declined recently. Data shows that Solana's active address count and Memecoin's transaction volume have both fallen from their peaks, indicating that the market's enthusiasm for Memecoin is gradually fading. The launch of Trump Meme coin was considered the peak of this craze , but as the speculative enthusiasm wanes, Solana needs to find new growth drivers. In addition, Base and other blockchains have also seen similar declines in activity, indicating that retail participation in the entire crypto market is weakening.

At the same time, Bitcoin's network activity has also shown similar weakness, and overall blockchain activity is experiencing a wave of decline. An important problem in the current market is that many investors seem to have lost their enthusiasm for cryptocurrencies, especially in the absence of sufficient "cheap money" and the lack of large-scale market incentives. Due to the influence of macroeconomic factors such as interest rate hikes, the market demand for risky assets has decreased, resulting in the crypto market's performance being lower than expected.

High interest rates, inflation, money supply

Historically, periodic bubbles and pullbacks are common in the cryptocurrency market. When market sentiment is low, new entry opportunities usually appear. Currently, we are in a relatively negative market sentiment phase, and market activity is declining, but this may be a precursor to a future rebound. As shown by the Crypto Fear and Greed Index, when the market is in a fear phase, it is a period when opportunities may appear in the long run. At this time, investors may start to re-position, and the market sentiment may turn positive.

The main problem in the current market is the interest rate environment. A true altcoin bull market, the so-called "altcoin season", can only be achieved when people have access to low-cost funds. However, in this cycle, this has not happened in the market as US interest rates remain high at around 4.5%.

In terms of market liquidity, billions of dollars of stablecoins flowed into cryptocurrency exchanges such as Binance and Coinbase every day from November last year to January 20, when Trump took office. However, this strong momentum has weakened. Although it still maintains positive inflows, the momentum has declined significantly and may even turn negative.

Regarding future trends, the market is mainly concerned about the policy trends of the Federal Reserve. At present, US inflation is still high, and the Federal Reserve is not ready to cut interest rates, which to some extent restricts market development and delays the arrival of the real altcoin season.

The next Fed rate decision will be held on March 18-19. Trump is actively pushing for rate cuts, which is one of his important policy agendas. Only when there is ample capital in the market can businesses flourish and venture capital be active. Trump has strongly criticized the decision to keep interest rates unchanged on January 29, but rate cuts still face challenges before the inflation problem is fully resolved.

Judging from the data, the US inflation rate is close to the target level of 2%. Since June 2022, the inflation rate has continued to decline, and although there have been some stagnations during the period, the overall downward trend continues. The market expects that the probability of the Fed cutting interest rates in March is as high as 92%, which is a very strong expectation. However, there is a view that the tariff policy implemented by Trump may cause inflation to rebound, but this effect may be limited to specific commodities and it will take time to be reflected in the data.

Falling oil prices are crucial to controlling inflation, and Trump is vigorously promoting increased domestic oil production. In addition, the weakness of the US dollar also provides favorable support for Bitcoin prices. Therefore, judging from the data, this stage may be a good time to enter the market.

Although the fundamentals are positive, the market is currently facing many uncertainties, including the specific implementation of tariff policies, possible responses from China and the EU, etc. These uncertainties put pressure on the market, but this situation will not last forever.

Institutional and Regulatory Developments

There are many significant changes happening in the market. While not all issues have been resolved, some of the developments are worth noting:

• Crypto Task Force : A dedicated Crypto Task Force has been established under the leadership of HESTP. They will work to establish a regulatory framework as quickly as possible to clarify the rules for all investors to operate in the cryptocurrency and blockchain markets. The task force will continue to publish the latest progress through its official website.
• Bitcoin ETF plan: Trump Media Group plans to launch a Bitcoin ETF called "Truth Bitcoin Plus ETF". This news indicates that Trump Media Group has also begun to enter the ETF field, trying to expand its influence in the cryptocurrency market by launching a Bitcoin ETF.
• Klarna enters crypto payment: Klarna, a well-known European payment company, is expanding its cryptocurrency business. They plan to integrate cryptocurrency payment functions into existing applications, which means that users can pay directly with cryptocurrencies through the Klarna platform in the future.
• Chinese market rumors: There are rumors in the market that China may re-accept cryptocurrencies. Although such news appears every few years and its authenticity remains to be verified, it is still worth paying attention to.

Overall, the cryptocurrency industry is undergoing unprecedented fundamental changes:

• The United States is establishing an active regulatory framework and showing a willingness to lead in the cryptocurrency space, similar to its support for technology companies such as Facebook and Amazon in the early days of the Internet.
• Today, other countries around the world have also realized that the cryptocurrency market is becoming an important part of the future economy and have expressed their desire to participate in it.
• While these changes will take time and may not meet the market's expectations for rapid change, the direction of development is clear.

The current market cycle is indeed longer than previous ones, and for good reasons:

• High interest rate environment continues
• Inflationary pressures remain
• This is completely different from the environment of massive monetary easing during the COVID-19 pandemic.
• The Fed is under no pressure to cut interest rates as the economy becomes more stable

From a positive perspective, the fact that the economy can withstand the current high interest rate level is itself a healthy sign. This shows that the economic fundamentals remain solid and lays the foundation for sustainable development in the future.

Summary and suggestions

The current market environment is very different from the past. If the policy is too loose, it may trigger a new round of inflation in the long run, which is obviously not what the market expects.

It is crucial for market participants to remain calm and rational. Currently, they need to:

• Avoid using leverage for now
• Be patient and accept that it will take longer for the market to turn around
• Continue to pay attention to the market and don't completely disconnect from it
• Take this as a warning and avoid the same mistakes as those investors who were forced to liquidate last Monday.

It is more important than ever to maintain a cautious and calm investment mindset. Market dynamics will continue to update, and it is important to always remain vigilant and strictly control risks.