The recent sharp downturn in Ethereum's price can be largely attributed to a chain reaction triggered by higher-than-expected US inflation data, which has negatively impacted risk assets across the board. Lower weekend liquidity appears to have intensified the sell-off across cryptocurrency markets. Amid the prevailing bearish sentiment, thousands of digital currency traders have faced liquidations in futures and decentralized finance (DeFi) positions as Ethereum (ETH) and other digital assets experienced another wave of heavy selling.
With BTC/USD hitting its lowest weekly close since December 2020, Ethereum quickly followed with a steep decline of its own. Losses accumulated by June 13th pushed the largest altcoin toward a ten-month low not seen since May. According to data from the cryptocurrency futures trading and research platform Coinglass, over $521 million worth of ETH positions were liquidated within a 24-hour period.
Below, we explore several key events influencing Ethereum's recent performance and provide clear explanations to help you better understand the current market situation.
The stETH “Depegging” Event in Ethereum 2.0 Staking
To understand what’s happening, it's helpful to first review how users participate in Ethereum’s Proof-of-Stake (PoS) mining—also referred to as Beacon Chain staking.
The process generally works as follows:
Users transfer their ETH to a service provider, which then stakes those funds into the Beacon Chain for validation. In return, the service provider issues a token that represents the staked ETH. One such token is stETH, offered by a service provider named Lido. When the Beacon Chain officially launches, users will be able to redeem one stETH for one ETH on the new chain. It’s important to note that the ETH received will technically be ETH 2.0, which operates on a different consensus mechanism, though its value is expected to remain pegged 1:1 with the current ETH.
How the Crisis Unfolded
The stability of this system was recently called into question.
Celsius, a well-known crypto financial services company, offers various crypto asset services to users—including interest-bearing accounts where users deposit ETH and receive interest over time.
Recently, Celsius disclosed a major problem:
Only 27% of the ETH owed to users was readily available for withdrawal. The remaining 44% would require converting stETH to ETH on decentralized exchanges like Curve. If too many users requested withdrawals at once, Celsius could face insolvency. In such a scenario, the liquidity conditions that help stabilize the stETH/ETH trading pair on Curve could break down, potentially causing stETH to depeg and fall significantly in value.
Following this news, market tension rose, and many users began selling stETH for ETH on Curve. This led to a deviation from the 1:1 peg, with stETH trading at a discount. The situation worsened when another institution with substantial stETH holdings began selling, further driving down stETH’s price.
But does this depegging event significantly impact Ethereum itself?
- The term “depegging” can be misleading—it refers to the exchange rate between two assets.
- After a successful Ethereum merge, one stETH is designed to be redeemable for one ETH, so a fundamental depeg isn’t permanent.
- Ethereum's decline is part of a broader downward trend; the so-called depegging narrative is just one of several contributing factors.
Maker (MKR): Major DeFi Lending Protocol Begins Selling ETH
MakerDAO, one of the largest DeFi lending protocols, sold a significant amount of Ethereum to manage debt and mitigate risks. The MakerDAO vault sold 65,000 ETH at an average price of $1,155 to repay outstanding debt. Later, the treasury sold an additional 27,946.97 ETH (worth approximately $33.536 million) for the same purpose.
In total, nearly 90,000 ETH were sold by the protocol to reduce financial exposure. This is not an isolated incident—many other projects built on Ethereum are also likely selling ETH to hedge against market volatility. As the leading DeFi lending protocol on Ethereum, MakerDAO plays a critical role in the ecosystem. The sharp decline in ETH's price affects the value of collateral within the protocol, increasing liquidation risk and forcing asset sales to maintain solvency and operational stability.
Market Sentiment and Institutional Behavior
Zhu Su, founder of Three Arrows Capital, recently removed mentions of ETH, AVAX, LUNA, SOL, NEAR, and MINA from his Twitter profile, leaving only “Bitcoin.” While large-scale institutional selling can sometimes signal a market bottom, currently it is not advisable to begin buying aggressively. It’s wiser to wait for the market to show signs of stabilization.
Ethereum's price has dropped more than 20% in the past six days, with most losses occurring after June 10. This aligns with the U.S. Labor Department’s report that May inflation reached 8.6%—the highest level since December 1981. The high Consumer Price Index (CPI) amplified investor concerns that the Federal Reserve would implement more aggressive interest rate hikes and accelerate the reduction of its $9 trillion balance sheet. This shift in monetary policy dampens enthusiasm for risk-on assets, including stocks, Bitcoin (BTC), and Ethereum.
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Frequently Asked Questions
What caused Ethereum’s recent price drop?
Ethereum's decline is largely due to macroeconomic factors, including higher-than-expected U.S. inflation data, which prompted fears of aggressive interest rate hikes. This led to a broad sell-off in risk assets, including cryptocurrencies.
What is stETH and why did it depeg from ETH?
stETH is a liquid staking token representing ETH staked on the Beacon Chain. It temporarily traded below its 1:1 peg due to market uncertainty and large selling pressure from institutional players, not because of a fundamental flaw in its design.
Should I buy Ethereum now during the dip?
While buying during dips can be profitable, current market conditions remain highly volatile. It’s generally recommended to wait for clearer signs of market stabilization before making significant investment decisions.
How does inflation data affect cryptocurrency prices?
High inflation often leads central banks to raise interest rates, making risky assets like cryptocurrencies less attractive to investors. This can trigger sell-offs across digital asset markets.
What is the impact of large-scale liquidations?
Liquidations force leveraged positions to be sold, creating additional downward pressure on prices. This can lead to cascading effects, especially in highly volatile markets like crypto.
Will Ethereum recover from this downturn?
While past performance is not indicative of future results, Ethereum has historically recovered from major corrections. Its long-term outlook remains tied to technological upgrades, adoption trends, and broader macroeconomic conditions.