After surging from below $2,000 to above $2,500, Ethereum is showing signs of losing momentum.
The price remains at elevated levels, but the pace of gains has clearly slowed, while market enthusiasm is no longer as strong as it was during the first few sessions.
Even so, the latest price action does not suggest that the trend has reversed. Instead, it indicates that the easiest phase of the rally may have passed, with the market becoming more cautious as it assesses the sustainability of capital flows.
One of the drivers behind the recent rally was the U.S. Treasury’s decision to expand its buyback program for longer-dated bonds, which temporarily pushed yields lower and weighed on the USD, improving sentiment toward risk assets.
This momentum was quickly amplified by a wave of short covering. On August 19 alone, the crypto market recorded approximately $2.99 billion in liquidations, of which $2.74 billion came from short positions. ETH therefore rose not only because of fresh buying demand, but also because short sellers were forced to buy back the asset to close their positions.
However, a short squeeze is unlikely to sustain a long-term rally. Once most vulnerable short positions have been removed from the market, this source of forced demand also begins to fade. To continue moving higher, ETH needs active buying from ETFs, institutions, and investors willing to hold the asset at a higher price level. A rally driven by liquidity and market positioning must ultimately be confirmed by genuine demand if it is to remain sustainable.
It is also worth noting that ETH has gained more than 30% within a relatively short period, giving short-term investors sufficient reason to lock in profits. Meanwhile, those who have yet to enter the market are becoming more cautious rather than chasing the price after such a large move. When one side wants to sell at higher prices while the other is not yet willing to raise its bids, the market naturally shifts into a period of consolidation.
At present, the U.S. PCE Price Index for July remains 3.7% higher than a year earlier, while core PCE is holding at 3.3%. These figures are not yet low enough for the Fed to feel comfortable about inflation, meaning the possibility of another interest rate hike cannot be ruled out. Fed Chair Kevin Warsh has also offered limited policy guidance since taking office, making his upcoming speech capable of triggering a significant reaction in the bond market and the USD. For a liquidity-sensitive asset such as Ethereum, investors reducing exposure ahead of the event is a relatively reasonable response.
Even so, one positive factor is that ETF flows have yet to show signs of reversing. U.S. spot Ethereum ETFs attracted $179.8 million on August 25 and $192.4 million on August 26. Preliminary data for August 27 showed at least another $74.9 million in net inflows, although several major funds had yet to report complete figures. This suggests that ETH’s current slowdown has not been caused by a wave of institutional outflows.
However, positive capital flows do not mean the market will rise in a straight line. Positioning in the derivatives market has quickly turned optimistic, with funding rates remaining positive and short-dated options leaning heavily toward further upside. After a strong rally, having too many investors positioned in the same direction may require the market to spend more time rebalancing, potentially through sharp pullbacks that flush out highly leveraged positions.
In my view, the current slowdown looks more like consolidation than weakness, but that does not mean ETH will immediately resume its rally. The recent breakout demonstrated how quickly market sentiment can change when liquidity conditions improve. The current phase will test whether there is enough sustainable capital behind that move.
If the Fed does not deliver a hawkish shock, the USD and Treasury yields do not rebound too strongly, and ETFs continue attracting capital, this period of consolidation could help ETH establish a firmer base for its next move higher. Conversely, if the message from Jackson Hole revives expectations of further rate hikes, profit-taking could quickly intensify, as a significant number of investors are currently sitting on substantial gains.
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