Original: BlockBlick

Translation: Yuliya, PANews

After months of intense fluctuations in the crypto market, the latest episode of the "BlockBlick" podcast provides a detailed analysis of recent dynamics in the crypto market, particularly the performance of Ethereum and Solana, as well as the future direction of the entire cryptocurrency market. PANews has provided a written translation of this episode.

Ethereum: Price Slump and Ecological Progress

Recently, the Ethereum market has experienced significant volatility, setting a historical high for daily liquidation volume. According to Coinglass data, the liquidation volume of long and short positions in Ethereum in a single day exceeded that of previous major events, including the FTX collapse and the Three Arrows Capital crisis. Market sentiment is extremely low, with short positions in Ethereum on the CME futures market also reaching new highs, indicating a lack of confidence among investors. Nevertheless, some investors are taking advantage of the price pullback to position themselves, with over $300 million flowing into Ethereum-related ETFs this week.

Ecological Technological Progress

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

• Transaction Throughput Hits New Highs: The transaction processing capacity of the mainnet and Layer 2 networks has reached historical highs, indicating an enhancement in the network's scalability.
• Gas Limit Increase: The gas limit on the Ethereum mainnet has been raised by over 20%, increasing the transactions per second (TPS) while significantly reducing transaction fees. Over the past week, transaction fees on the Ethereum mainnet have dropped to historical lows. Layer 2 solutions like Base have raised gas limits to 60 million in hopes of increasing network throughput and further expanding market demand.
• Growth of Tokenized Assets: The total value of tokenized assets on the Ethereum mainnet has exceeded $17 billion, dominating the market. A large number of physical assets, including loans, commodities, and U.S. Treasury bonds, have been transferred to the blockchain, with over 80% of tokenized assets distributed across the Ethereum mainnet and its Layer 2 networks.

Inflation Issues

However, low gas fees also reflect a decline in the utilization of the Ethereum network, with a slowdown in ecosystem activity. For the first time since the merge, Ethereum has entered an inflationary state, with the current supply exceeding pre-merge levels, indicating an increase in the number of Ethereum tokens circulating in the market. Observing the Ultrasound Money chart, it can be seen that Ethereum's deflationary trend lasted for several years, but since the emergence of Layer 2 scaling solutions, which have reduced reliance on the main chain, the amount of Ethereum being burned has decreased, leading to a gradual return of Ethereum's supply to an inflationary state.

However, compared to Bitcoin, Ethereum's inflation rate remains relatively low, expected to fluctuate between -1% and +1% in the future. Therefore, despite market concerns, this fluctuation is anticipated and does not imply a threat to the long-term health of the Ethereum ecosystem.

It is worth noting that only 1% of Bitcoin miners' income in the past week came from transaction fees, with the remainder primarily relying on block rewards. Considering Bitcoin's halving mechanism every four years, if mainnet transaction volumes do not significantly increase, miners' income may face challenges in the future.

Solana: Technical Stability and Meme Coin Craze

Improvement in Technical Stability

In contrast to Ethereum's challenges, Solana has shown strong momentum. Although its price has fallen from a historical high of $250 to $202, the decline has been relatively moderate. The Solana network recently achieved an important milestone: it has operated for a full year without major outages, which is significant in its development history. Notably, in the past 35 days, even during peak periods such as the Meme coin craze and the launch of Trump meme coins, the network has remained stable.

According to Artemis data, Solana leads significantly in the number of daily active addresses:

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

These developments may impact the competitive landscape of the cryptocurrency market. While Ethereum maintains a lead in enterprise-level applications and tokenization of physical assets, Solana's advantages in performance and user activity cannot be overlooked. This competitive dynamic offers market participants a more diversified range of investment options.

The Double-Edged Effect of the Meme Coin Craze

The recent activity in the Solana ecosystem has partly benefited from the popularity of Memecoins, especially driven by the Pump.fun platform. Data shows that this platform generates about 70,000 new tokens daily, with a total reaching 7.5 million. According to CoinMarketCap, the total number of issued tokens is close to 11.04 million, indicating a significant market share for Pump.fun.

However, the Memecoin craze has also brought some negative effects: a large influx of funds into the Memecoin market has led to decreased attention on other projects, dispersing market funds. Additionally, many investors have incurred losses due to the high speculation of Memecoins, further weakening market confidence. This presents a significant challenge currently facing the cryptocurrency market: despite a large influx of funds, most of it is directed towards short-term, high-risk investments, lacking projects with long-term sustainable development. In this process, while some projects like Bitcoin and Solana have shown stable growth, others struggle to generate meaningful value. This situation places the entire market in a precarious state, especially for Ethereum, which remains a leader among projects with long-term value.

Despite Solana's progress in technical stability, on-chain activity has recently declined. Data shows that the number of active addresses on Solana and the trading volume of Memecoins have both retreated from their peaks, indicating a waning enthusiasm for Memecoins. The launch of the Trump Meme coin is considered the peak of this craze, but as speculative fervor diminishes, Solana needs to seek new growth drivers. Additionally, the activity of Base and other blockchains has also seen a similar decline, indicating a decrease in retail participation across the entire crypto market.

Meanwhile, Bitcoin's network activity has also shown similar signs of fatigue, with overall blockchain activity experiencing a downturn. A significant issue in the current market is that many investors seem to have lost their enthusiasm for cryptocurrencies, especially in the absence of sufficient "cheap capital," lacking large-scale market incentives. Due to macroeconomic factors such as interest rate hikes, demand for risk assets has decreased, leading to underperformance in the crypto market.

High Interest Rates, Inflation, and Money Supply

Historically, periodic bubbles and downturns are common phenomena in the cryptocurrency market. During times of low market sentiment, it is often when new entry opportunities arise. Currently, we are in a relatively negative market sentiment phase, with decreased market activity; however, this may precisely signal a potential rebound in the future. As the Crypto Fear and Greed Index illustrates, when the market is in a state of fear, it is often a time when long-term opportunities may arise. At this point, investors may begin to reposition themselves, and market sentiment could shift towards the positive.

The main issue in the current market lies in the interest rate environment. A true altcoin bull market, often referred to as "altcoin season," can only occur when people can access low-cost capital. However, in this cycle, due to U.S. interest rates remaining high at around 4.5%, the market has not seen this situation.

In terms of market liquidity, from November last year to January 20 during Trump's presidency, billions of dollars in stablecoins flowed into cryptocurrency exchanges like Binance and Coinbase daily. However, this strong momentum has weakened, and while positive inflows are still maintained, the momentum has clearly declined and may even turn negative.

Regarding future trends, the market is primarily focused on the Federal Reserve's policy direction. Currently, U.S. inflation remains relatively high, and the Federal Reserve is not yet prepared to cut interest rates, which somewhat limits market development and delays the arrival of a true altcoin season.

The next Federal Reserve interest rate decision will take place on March 18-19. Trump is actively pushing for interest rate cuts, which is one of his key policy agendas. Only when market funds are abundant can businesses thrive and venture capital become active. Trump has strongly criticized the decision to maintain interest rates on January 29, but rate cuts still face challenges until inflation issues are fully resolved.

From the data, the U.S. inflation rate is approaching the target level of 2%. Since June 2022, the inflation rate has been on a downward trend, although there have been some stagnations during this period, the overall downward trend continues. The market expects a 92% probability of a Federal Reserve rate cut in March, which is a strong expectation. However, some believe that Trump's tariff policies may lead to a rebound in inflation, although this impact may be limited to specific goods and will take time to reflect in the data.

The decline in oil prices is crucial for controlling inflation, and Trump is vigorously promoting increased domestic oil production. Additionally, the weakness of the dollar also provides favorable support for Bitcoin prices. Therefore, from the data, this stage may represent a good entry point.

Although the fundamentals are improving, the market currently faces many uncertainties, including the specific implementation of tariff policies and potential responses from China and the European Union. These uncertainties put pressure on the market, but this situation will not last forever.

Institutional and Regulatory Developments

The market is undergoing many significant changes. While not all issues have been resolved, some of the progress is still noteworthy:

• Cryptocurrency Task Force: Under the leadership of HESTP, a dedicated cryptocurrency task force has been established. They will work to quickly establish a regulatory framework to clarify the rules for all investors operating in the cryptocurrency and blockchain markets. The task force will continuously release updates through its official website.
• Bitcoin ETF Plans: Trump's media group (Trump Media Group) plans to launch a Bitcoin ETF called "Truth Bitcoin Plus ETF," indicating that the Trump media group is also entering the ETF space, attempting to expand its influence in the cryptocurrency market through the launch of a Bitcoin ETF.
• Klarna Enters Crypto Payments: The well-known European payment company Klarna is expanding its cryptocurrency business. They plan to integrate cryptocurrency payment functionality into their existing application, meaning users will be able to use cryptocurrencies directly for payments through the Klarna platform in the future.
• Rumors in the Chinese Market: There are again rumors about China possibly re-accepting cryptocurrencies. While such news tends to emerge 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 a proactive regulatory framework, demonstrating a willingness to lead in the cryptocurrency space, similar to the support for tech companies like Facebook and Amazon during the early internet era.
• Today, other countries around the world are also realizing that the cryptocurrency market is becoming an important component of the future economy and are expressing a desire to participate.
• Although these changes will take time and may not meet the market's expectations for rapid shifts, the direction of development is clear.

The current market cycle is indeed longer than in previous periods, and there are good reasons for this:

• The high interest rate environment persists.
• Inflationary pressures remain.
• This is completely different from the environment of massive monetary easing during the COVID-19 pandemic.
• We are currently in a more stable economic environment, with no urgent pressure for the Federal Reserve to cut interest rates.

From a positive perspective, the economy's ability to withstand the current high interest rate levels is itself a healthy sign. This indicates that the economic fundamentals remain robust, laying the groundwork for sustainable development in the future.

Summary and Recommendations

The current market environment is significantly different from the past. If policies are overly accommodative, it could lead to a new round of inflation in the long term, which is clearly not the outcome the market desires.

For market participants, it is crucial to remain calm and rational. What is needed at this moment is to:

• Temporarily avoid using leverage.
• Be patient and accept the fact that the market may take longer to turn around.
• Continue to pay attention to the market and not completely disengage.
• Learn from the past and avoid repeating the mistakes of investors who were forcibly liquidated last Monday.

Maintaining a cautious and calm investment mindset is more important than ever. Market dynamics will continue to evolve, and it is essential to remain vigilant and strictly control risks.

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