Unraveling Ethereum's Dramatic Plunge: What Caused the 7% Drop in Just 3 Minutes?

Ethereum's August 4 decline was marked by a shocking 7% drop in just three minutes, as revealed in a recent Grayscale report. The report suggests that this steep decline was largely influenced by the liquidation of long positions in perpetual futures.

The Catalyst Behind the Crash

The report highlights that the liquidation occurred amidst speculation of a potential ETH rally following the SEC's approval of spot Ethereum exchange-traded products (ETPs) in May 2024. However, the anticipated surge did not materialize, leading to a significant sell-off.

Market Dynamics at Play

On August 4, Ethereum's price plummeted to just above $2,000, with liquidations totaling $340 million occurring in a single day. The sell-off was exacerbated by Jump Crypto's rumored offloading of over 17,500 ether coins, along with additional sales from Paradigm and Golem Network, contributing to an overall decline of over 20% at one point.

The report emphasized that the liquidations were primarily driven by leveraged traders in Asia, occurring during the U.S. overnight session, which resulted in a noticeable price discount on exchanges like Binance compared to Coinbase.

A Deviation from the Norm

The report also pointed out that Ethereum's decline was 1.8 times greater than that of Bitcoin, which typically sees ETH falling only 1.2 times as much during downturns. This marked the day as a significant event in the crypto market, often referred to as Black Monday for Ethereum.

Community Reactions

The crypto community has been abuzz with speculation regarding the causes of this dramatic decline, with many pointing fingers at Jump Crypto's emergency sale.

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