Ethereum Price Breaks $3500, Hitting All-Time High: Hidden Risks Behind Whale Sell-Off?

Ethereum Price Breaks $3500, Hitting All-Time High: Hidden Risks Behind Whale Sell-Off?On the morning of May 6th, Ethereum (ETH), the world's second-largest cryptocurrency, surged past $3500, setting a new all-time high. This upward momentum, building on its recent breakthrough of the $3000 mark, has continued to reach new peaks, contrasting sharply with Bitcoin's fluctuating performance

Ethereum Price Breaks $3500, Hitting All-Time High: Hidden Risks Behind Whale Sell-Off?

On the morning of May 6th, Ethereum (ETH), the world's second-largest cryptocurrency, surged past $3500, setting a new all-time high. This upward momentum, building on its recent breakthrough of the $3000 mark, has continued to reach new peaks, contrasting sharply with Bitcoin's fluctuating performance. Ethereum's strength in this seemingly inverse relationship with Bitcoin has drawn significant market attention. Ethereum currently boasts a total market capitalization exceeding $400 billion, approximately 40% of Bitcoin's, a stark contrast to the over 700% gap seen a year prior. However, the highly concentrated ownership of ETH among large holders presents a considerable risk.

Ethereum's Strong Ascent, Market Cap Nearing 40% of Bitcoin's

According to data from the cryptocurrency information platform NonFungible.com (likely referring to a similar platform in the Chinese context of the original text), Ethereum's price surpassed $3500 in the early hours of May 6th, marking a new all-time high. The price has steadily climbed since breaking the $3000 barrier on May 3rd. As of the morning of May 7th, Ethereum was trading at $3529, with a total market cap exceeding $400 billion. Its weekly gains approached 29%, while its year-over-year growth exceeded 1633%, representing a more than 16-fold increase.

Li Weiliam, Chief Researcher at OKEx Research Institute, explained that Ethereum (ETH), as the cryptocurrency issued by the blockchain network protocol layer, underpins the smooth operation of distributed applications. The majority of a blockchain network's value is concentrated in its protocol layer (Ethereum network), with only a smaller portion residing in the application layer (decentralized applications). For example, 90% of DeFi projects operate on the Ethereum network. The flourishing DeFi sector directly fuels the demand for ETH, driving its continuous price appreciation.

Li also pointed to positive news contributing to the price surge, such as the launch of three Ethereum ETFs in Canada in late April and reports of the European Investment Bank planning to issue digital bonds on the Ethereum network.

Long Dian, founder of Huoxun Finance, believes the Bitcoin-to-Ethereum ratio hitting a new high this year signals the cryptocurrency bull market's entry into its latter stages. He suggests the combined effects of market manipulation and investor psychology are driving Ethereum's price explosion. Early Bitcoin investors are shifting profits to new investment targets, and Ethereum's recent highs make it an attractive destination for speculative capital. Furthermore, the bull market is attracting many new users, some of whom are hesitant about Bitcoin's high price, making the comparatively cheaper Ethereum a more appealing option.

Ethereum's strong performance is rapidly closing the market cap gap with Bitcoin. While Bitcoin is trading around $57,000 with a total market cap of approximately $1 trillion (about 2.5 times Ethereum's), a year ago, Bitcoin's market cap was around $169 billion, compared to Ethereum's $23 billion a difference of over 7 times. Bitcoin currently holds about 47% of the global cryptocurrency market, while Ethereum's share stands at 18%, showing an upward trend.

Li Weiliam notes that Bitcoin's dominant position in the cryptocurrency market remains unshaken. The current bull market inflates various altcoins, causing Bitcoin's market share to dip temporarily, but this share is expected to recover during future bear markets.

Large Holders' Collective Sell-Off: A Warning Sign of $4 Billion+ Liquidation

Simultaneously, large holders are significantly offloading ETH, a concern given the concentrated ownership of the cryptocurrency. A substantial portion of ETH is held by a small number of large accounts. NonFungible.com data shows that while there are 150 million ETH addresses, the top 10 hold 19% of ETH, and the top 50 hold 31%.

A cryptocurrency address is analogous to a bank account number. Ding Feipeng, director of the criminal department at Beijing Shangguang Law Firm, points out that a more decentralized distribution of addresses generally indicates greater stability and security. However, analyzing address distribution alone is insufficient; its crucial to consider whether top addresses include exchanges and wallets, as these platforms hold significant amounts of assets on behalf of retail investors, potentially creating a misleading impression of concentration.

Fu Rao, executive director of the International New Economy Research Institute, highlights that approximately three years ago (June 2018), the top 10 Ethereum addresses held only 10% of the total supply. Aside from "cold wallets" untouched since inception, other addresses have been accumulating over the past three years, suggesting a rising risk of price manipulation.

Significantly, by May 6th, large holders sold 1.29 million ETH over seven days, potentially liquidating over $4 billion. NonFungible.com data indicates that seven of the top ten most liquid addresses reduced their holdings by a total of 1.29 million ETH within this period. At $3300 per ETH (May 6th opening price), their profits likely exceeded $4.3 billion.

Fu Rao suggests this massive sell-off implies that "market makers" believe the current price is overvalued. However, the top 10 addresses, having accumulated holdings over years, possess ample reserves and may not necessarily be "dumping" their assets.

Ding Feipeng cautions that the recent sell-off might not solely represent large holders exiting, but could be attributed to other factors, such as the emergence of new promising projects. Crypto assets are a nascent investment class, presenting both risks and opportunities; investors should carefully assess their risk tolerance before investing.

Conclusion

Ethereum's impressive surge is undeniable, yet underlying risks warrant caution. The concentrated ownership and recent massive sell-off cast a shadow over its future trajectory. Investors should remain vigilant, rationally assess risks, and avoid blind following of trends. The cryptocurrency market is highly volatile; invest cautiously.