Cryptocurrencies plunged sharply, with Bitcoin briefly approaching the $58,000 mark!

On Wednesday morning, cryptocurrencies broadly declined, with the largest digital currency, Bitcoin, falling over 5% to drop below the $60,000 mark, briefly nearing $58,000. Ethereum also saw a sharp drop, falling as much as 10% during the day.

Last Friday, Federal Reserve Chairman Jerome Powell gave the clearest signal yet that the Fed plans to cut the benchmark interest rate from its highest level in over two decades, leading to a pullback in major tokens. Analysts believe that major tokens are adjusting to Powell's signal from last week.

Tony Sycamore, a market analyst at IG Australia Pty, noted that for many assets, "the Fed is essentially in play," which makes Bitcoin's drop below the 200-day moving average "a bit concerning."

According to Bloomberg data, the spot Ethereum ETF launched in July has seen nearly $112 million in net outflows over the past eight trading days, marking its longest net outflow period to date.

Ethereum has yet to recover from the losses suffered in early August when the unwinding of yen arbitrage trading led to significant declines in the crypto market and global stock markets.

Muneeb Khan, Executive Director at Kraken OTC, mentioned in an email that while the Ethereum blockchain dominates decentralized finance activities, its native token, Ethereum, "is seeking a new narrative to drive its continued growth." He also noted that initial enthusiasm for Ethereum's potential deflationary attributes seems to have waned.

While Bitcoin has a fixed supply limit of 21 million coins, Ethereum's supply is not fixed, with the circulating total increasing throughout much of this year.

Cici Lu McCalman, founder of Venn Link Partners, pointed out that Layer-2 platforms like Arbitrum and Optimism, which help Ethereum scale, are now starting to erode transaction fees on the network. She explained that Ethereum relies on "burning" a portion of its transaction fees to permanently remove tokens from circulation, so paying fees to Layer-2 platforms makes Ethereum "inflationary rather than deflationary."

Research firm Messari's Monday report highlighted concerns about the shift of economic activity from Ethereum to an increasing number of Layer-2 chains, raising broader questions about what Ethereum should focus on and the future of the ETH asset.

Lu added that the industry's focus has shifted from DeFi projects to so-called meme coins, which is also a factor in Ethereum's underperformance compared to competitors like Solana, a blockchain popular among meme coin issuers.

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