Source: Crypto Compound, Compiled by Shaw Jinse Finance Ethereum has officially entered the price discovery phase. The second-largest cryptocurrency by market capitalization broke through its 2021 all-time high of $4,885, briefly rising above $4,900 intraday, setting the stage for a potentially decisive chapter in this cycle. Unlike many past cryptocurrency rallies, this breakout isn't simply speculative—it's driven by shifting macroeconomic policies, institutional demand via new exchange-traded funds (ETFs), strong on-chain fundamentals, and shifting psychological thresholds for capital inflows into the market. Let's analyze why this rally is significant, the drivers behind it, and the risks that remain. Macro Liquidity Tailwinds Markets rely on liquidity, and Jerome Powell's comments last week were exactly what risk assets wanted to hear. Speaking at Jackson Hole, the Fed Chairman acknowledged rising risks to employment and hinted that a rate cut could come sooner than expected. This dovish tone was enough to send yields lower, the dollar weaker, and equities higher—conditions that have historically fueled cryptocurrency bull runs. Compared to Bitcoin, Ethereum behaves more like a high-beta, liquid asset. When capital is cheap, investors seek growth and cyclicality, not just safety. With Powell effectively opening the door to a September rate cut, Ethereum finds itself in an ideal environment for a breakout. ETF Inflows: A New Demand Engine Perhaps the most significant structural development of this cycle is the launch of Ethereum spot ETFs. These investment vehicles offer institutional and traditional investors a simple, regulated way to deploy capital without having to access a wallet or exchange. In just a few weeks, inflows have surged into the billions, with daily additions exceeding hundreds of millions. Total assets under management have surpassed $12 billion, and over 6 million ETH is currently held in custodial ETFs. These funds won't return to exchanges anytime soon—they're locked up, reducing the available supply. Earlier this year, the launch of Bitcoin ETFs triggered a similar demand shock. Now, Ethereum is experiencing its own structural buying, and the market is reacting. Ethereum vs. Bitcoin: A Rotational Trade Throughout this cycle, Bitcoin has served as digital gold—a steady, conservative investment, and the first stop for institutional investors to test the waters of cryptocurrencies. However, once liquidity returns, investors typically move to more liquid assets. This is precisely the case with Ethereum. ETH is considered a "leveraged beta" for liquidity—more responsive to capital flows, more tightly connected to applications, and more cyclical than BTC. The ETH/BTC ratio has climbed to a yearly high, reigniting debate about whether Ethereum's market capitalization could eventually surpass Bitcoin. Regardless of whether a reversal occurs, the key point is that investors view Ethereum as more explosive at this stage in the cycle. Leverage and Liquidations The raw volatility of price action is not only about fundamentals but also about positioning. Leverage across exchanges surged ahead of the Jackson Hole conference. When Powell delivered his dovish remarks, ETH prices surged, forcing shorts to cover their positions. The result: over $200 million in liquidations within hours, the majority of which was ETH. This short squeeze is reflexive—liquidations drive prices higher, which in turn triggers more liquidations, and the cycle repeats. While it can amplify volatility in the short term, it can also clear out weak positions, reset the market, and return it to a healthier trend. On-Chain Fundamentals Unlike in 2017 and even parts of 2021, Ethereum's fundamentals today provide real support for its valuation. Several key trends stand out: Layer 2 Growth: Networks like Arbitrum, Optimism, and Base process more transactions than Ethereum's base layer while paying ETH fees. Total Value Locked: Decentralized Finance (DeFi) activity rebounded strongly, with total value locked (TVL) climbing back above $60 billion.
Enterprise Adoption: Upgrades like Pectra could reduce fees by over 90% and increase throughput, making ETH more suitable for real-world use.
Supply Dynamics: Since the merger, Ethereum's issuance has been deflationary during periods of peak usage. Higher activity leads to greater destruction of ETH, tightening supply during bullish market phases.
These fundamentals build a narrative that Ethereum (ETH) is more than just a speculative token—it's the backbone of an evolving financial system.
The Psychology of New Highs
Breaking through all-time highs means more than just clearing technical resistance—it shifts market psychology. In 2021, traders who bought near the top had to wait nearly four years to recoup their losses. Now that this ceiling has been broken, the price is no longer under pressure from overhead supply. This opened the door to price discovery, fueled by FOMO (fear of missing out). Momentum funds flocked in as models triggered at new highs. Retail investors, taking note of the headlines, sought opportunities to participate. Even institutions that ignored crypto a year ago are now under pressure to explain why they haven't included ETH in their asset allocations. In markets, psychology often plays just as important a role as mathematics. And now, market sentiment has clearly shifted to the bullish side. Global Macro Cross-Impacts Ethereum doesn't trade in isolation—it moves with global markets. Three macro variables will be crucial in the coming weeks: A weaker US dollar will boost ETH/USD. A significant rebound in the dollar could lead to a correction in cryptocurrency prices. Treasury Yields: Yields below 4.2% will support risky assets. If yields rise back to 5%, trouble looms. Stock Market: The Nasdaq and S&P remain strong. If the stock market continues to rise, ETH could follow. Currently, all three forces are leaning in favor. But they could shift quickly, and cryptocurrencies are well-positioned to react. Impending Risks: Every rally carries risks. Ethereum's breakout momentum is strong, but not unbreakable. Key risks include: A hawkish Fed: If inflation accelerates again, Powell could be forced to reverse course. This would quickly deplete liquidity. ETF Weakness: Early inflows were strong, but sustained demand is uncertain. We've seen Bitcoin ETFs cool down before recovering. Validator Exits: Over 900,000 ETH are waiting for withdrawals. If a large amount of supply floods the market simultaneously, price volatility could increase. Excessive Leverage: After a significant squeeze, funding rates and open interest could overheat again, making ETH vulnerable to a significant correction. Recognizing these risks doesn't mean abandoning a bullish view—it's about remaining realistic. Analyst Expectations: Following Ethereum's breakout, several major institutions raised their price targets. Some believe $5,000 is imminent. Others predict $7,500 by year-end if ETFs continue to see inflows and the Federal Reserve cuts interest rates. More aggressive forecasts suggest $25,000 by 2028. Skeptics warn that new highs often attract profit-taking from long-term holders. However, demand has so far absorbed the selling pressure. The fact that Ethereum was able to cleanly break through resistance suggests that this rally isn't purely speculative—it's supported by structural fund flows. What to Watch Next Here are the key areas to watch in the coming weeks: Support: $4,100 is the nearest strong support level. Holding above this level could allow the rally to continue. ETF Inflows: Daily data will reveal whether institutional investors remain actively buying. Macro Data: The jobs report, inflation, and the next Fed meeting in September will be crucial. On-Chain Activity: Watch L2 transaction counts, DeFi growth, and burn rates to gauge fundamental demand. If all these factors align, Ethereum can not only sustain its breakout but potentially extend it into a new, higher range. Ethereum's all-time high is more than just a number. It demonstrates that the asset has evolved into a macroeconomically influenced, institutionally backed, and fundamentally driven component of the financial system. Powell's dovish stance provided the opportunity, ETFs provided the momentum, and Ethereum's ecosystem provided the structure. These three factors combined to create one of the most credible breakouts in cryptocurrency history.
This doesn't mean prices will soar from now on. Pullbacks will still occur, volatility will return, and risks will remain. But the trend is clear: Ethereum has not only kept pace with Bitcoin, it has led the market into the next phase of its cycle.
For traders, it means riding the new trend. For investors, it means recognizing that the world's second-largest crypto asset has just proved that under the right circumstances, it can break records.
For the market as a whole, it means the cycle has truly entered its next phase.
Alex
JinseFinance
Future
Cointelegraph