Ethereum is facing a liquidation wave, the Solana ecosystem Meme wave weakens, and when will the turning point of the crypto market come?

Original text: BlockBlick

Compiled by: Yuliya, PANews

After months of violent fluctuations in the crypto market, the new podcast of BlockBlick has analyzed the recent trends in the crypto market, especially the performance of Ethereum and Solana, as well as the future trend of the entire cryptocurrency market. PANews is the first to do this issue. The podcast was compiled with text.

Ethereum: Price sluggish and ecological progress

Recently, the Ethereum market has experienced drastic fluctuations, setting a record high in single-day clearance volume. According to Coinglass data, Ethereum 's long and short clearing volumes exceeded previous major events in one day , including the FTX crash and the Three Arrows Capital crisis. Market sentiment is extremely sluggish, and Ethereum short positions in the CME futures market also hit a new high , indicating that investors lack confidence in Ethereum. Despite this, some investors used price pullbacks to make layouts , and Ethereum-related ETFs attracted more than $300 million inflows this week.

Ecological technology progress

Despite weak prices, Ethereum's technology ecosystem is developing steadily:

• Transaction throughput hits a new high: the transaction processing capabilities of the mainnet and Layer 2 networks reached an all-time high, indicating that the network's scaling capabilities are increasing.
• Gas limit increases: Gas limits on the Ethereum main network have been increased by more than 20%, increasing transaction volume per second (TPS) while trading fees have dropped significantly. In the past week, Ethereum main network transaction fees have dropped to historical lows. Layer 2 solutions like Base have increased the gas limit to 60 million in a bid to increase network throughput and further expand market demand.
• Tokenized assets growth: The total value of tokenized assets on the Ethereum main network has exceeded US$17 billion, occupying a dominant market position. Physical assets, including loans, commodities and U.S. Treasury bonds, were transferred to the blockchain in large quantities, with more than 80% of tokenized assets distributed on the Ethereum main network and its Layer 2 network.

Inflation issues

However, low Gas fees also reflect a decline in Ethereum network usage and a slowdown in ecosystem activity. Ethereum has entered an inflationary state for the first time since the merger. Currently, Ethereum’s supply has exceeded its pre-merger level, which means that the number of Ethereum tokens circulating in the market has increased. By observing the Ultrasound Money chart, we can see that the deflation trend of Ethereum has lasted for several years, and since the emergence of Layer 2 expansion solutions, these solutions have reduced their dependence on the main chain, resulting in the destruction of Ethereum Reduce and gradually bring Ethereum's supply back to inflation.

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 at risk.

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

Solana: Technical Stability and Meme Coin Hot

Improved technical stability

Compared with Ethereum's challenge, Solana shows strong momentum. Although its price fell back to $202 from its all-time high of $250, the decline was relatively modest. Solana network has achieved an important milestone recently: it has achieved operation without major failures for the first time for a whole year , which is of great significance in its development history. Especially in the past 35 days, the network has remained stable even in the face of peak periods such as the Meme coin boom and the Trump meme coin release.

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

• Solana: 5-6 million active wallets per day
• Base: about 700,000-800,000
• Ethereum main network: about 400,000

These developments may affect the competitive landscape of the cryptocurrency market. While Ethereum remains ahead 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 two-sided effect 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, with a total of 7.5 million. According to CoinMarketCap, 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 boom also brought some negative effects: a large amount of funds poured into the Memecoin market, resulting in lower attention from other projects and diversified market funds. In addition, many investors have lost money due to Memecoin's high speculative nature, further weakening market confidence. This is also an important challenge facing the cryptocurrency market at present: despite a large amount of capital inflows, most of the funds flow to short-term, high-risk investments and lack of long-term sustainable projects. In the process, while some projects like Bitcoin and Solana have shown steady growth, others have difficulty sustaining meaningful value. This situation makes the entire market in a difficult state, especially for Ethereum, which is still the leader among projects with long-term value.

Despite Solana's advances in technical stability, on-chain activity has declined recently. Data shows that Solana's number of active addresses and Memecoin's trading volume have both fallen from its peak, indicating that the market's enthusiasm for Memecoin has gradually faded. The launch of Trump Meme is considered the culmination of this craze , but as speculation wanes, Solana needs to find new growth momentum. In addition, Base and other blockchains have also seen a similar decline in activity, indicating that retail investors' participation in the entire crypto market is weakening.

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

High interest rates, inflation, money supply

Historically, cyclical bubbles and fallbacks have been common phenomena in the cryptocurrency market. When market sentiment is sluggish, it is usually the moment when new entry opportunities appear. Currently, we are in a relatively negative market sentiment stage, with market activity declining, and this may be a precursor to future rebounds. As the Crypto Fear and Greed index shows, when the market is in a stage of fear, it is a period of possible opportunities in the long run. At this time, investors may start to make a new layout and market sentiment may turn positive.

The main problem in the current market lies in the interest rate environment. The real bull market for altcoin, the so-called "altcoin season", can only be achieved when people can obtain low-cost funds. However, this has not happened in the market during this cycle as US interest rates remained at a high of about 4.5%.

In terms of market liquidity, from November last year to January 20, billions of dollars of stablecoins flowed into cryptocurrency exchanges such as Binance and Coinbase every day. However, this strong momentum has weakened at present. Although it still maintains a positive inflow, the momentum has dropped significantly and may even turn to a negative value.

Regarding future trends, the market mainly focuses on the Fed's policy trends. Currently, the US inflation is still relatively high, and the Federal Reserve is not ready to cut interest rates, which to some extent limits market development and delays the arrival of the real altcoin season.

The next Fed rate resolution will be held from March 18-19. Trump is actively pushing for rate cuts, which is one of his important policy agendas. Only when the market is abundant can enterprises flourish and venture capital be active. Trump has strongly criticized the decision to keep interest rates unchanged on January 29, but the rate cuts are still challenged until inflation issues are fully resolved.

Judging from the data, the US inflation rate is close to the target level of 2%. Inflation has continued to decline since June 2022, and despite some stagnation during the period, the overall downward trend continues. The market expects that the probability of the Federal Reserve's interest rate cut in March is as high as 92%, which is quite strong. However, some people believe that the tariff policies implemented by Trump may lead to a rebound in inflation, but the impact may be limited to specific commodities and will take time to reflect in the data.

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

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

Organization and regulatory progress

There are many major changes in the market. While not all issues have been resolved at present, some of these progress is worth noting:

• Crypto Task Force : Under the leadership of HESTP, a dedicated cryptocurrency workgroup has been established. They will set out to establish a regulatory framework as soon as possible to clarify the rules for all investors to operate in the cryptocurrency and blockchain markets. The working group will continue to release the latest developments through its official website.
• Bitcoin ETF Plan: Trump's Trump Media Group plans to launch a Bitcoin ETF called "Truth Bitcoin Plus ETF". This news shows that Trump Media Group has also begun to enter the ETF field. Trying to expand its influence in the cryptocurrency market by launching Bitcoin ETFs.
• Klarna enters crypto payments: Klarna, a well-known European payment company, is expanding its cryptocurrency business. They plan to integrate cryptocurrency payment capabilities into existing applications, which means that users can pay directly through the Klarna platform in the future.
• Rumors of the Chinese market: rumors of China's possible re-acceptance of cryptocurrencies have appeared in the market. 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 that demonstrates leadership in the cryptocurrency field, similar to the support for technology companies such as Facebook and Amazon in the early Internet era.
• Now, other countries around the world are aware that the cryptocurrency market is becoming an important part of the future economy and have expressed their desire to participate.
• Although these changes take time and may not meet the market's expectations for rapid changes, the direction of development is clear.

The current market cycle is indeed longer than previous periods, and there is good reason:

• High interest rate environment continues
• Inflation pressure remains
• It is completely different from the environment of large-scale monetary easing during the COVID-19 pandemic
• Currently in a more stable economic environment, the Fed has no pressure to cut interest rates urgently

From a positive point of view, the economy is able to withstand current high interest rates, which is a healthy signal in itself. This shows that the economic fundamentals are still stable and lays the foundation for future sustainable development.

Summary and suggestions

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

It is crucial for market participants to stay calm and rational. Currently, it is necessary:

• Avoid leverage temporarily
• Stay patient and accept the fact that the market will take longer to turn around
• Keep your attention to the market and don't completely get out of the market
• Take it as a warning to avoid repeating the mistakes of 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 be updated. It is important to always be vigilant and strictly control risks.