Recently, I observed a phenomenon worth in-depth discussion—the logic behind ETH's sharp decline is far more complex than a simple technical breakdown.

Looking back at the correction in early February, Ethereum fell below $2,000 to $1,826, even probing as low as $1,796. Many people were still shouting "bottom fishing" at the time, but the more they bought, the more they lost. However, if you understand the three layers of driving forces behind this, you'll see why this isn't just a straightforward technical adjustment but a structural deleveraging process.

First is the macro level. U.S. labor data showed a clear slowdown around that time—initial jobless claims unexpectedly rose to 231k, along with over 108k layoffs in January. This should have implied expectations of rate cuts, but the market reacted oppositely. Because inflation remains "stubborn," investors are hesitant to bet that the central bank will truly loosen monetary policy. As a result, all high-volatility assets were indiscriminately sold off, with Ethereum, historically more volatile than Bitcoin and a "high beta" asset, bearing the brunt.

Second is the confidence crisis in the AI sector. Throughout 2025, the AI concept was heavily promoted, with large tech companies pouring money into AI infrastructure. But by early February, investors started demanding real returns. When giants like Microsoft and Google failed to deliver satisfactory results and instead announced higher spending, the entire AI narrative instantly reversed. Ethereum, hosting numerous related projects like DePIN and AI threads, naturally became a victim of this "contagion effect."

The third layer is the chain reaction on the technical side. Before February, the market had accumulated a large number of long leveraged positions. When BTC dropped to $60,000 and ETH broke through $2,000, automatic margin calls were triggered. Within 72 hours, nearly $5.4 billion of leveraged longs were liquidated across the entire market. For ETH, breaking the psychological barrier of $2,000 was like opening Pandora’s box—what was a slow decline suddenly turned into a frantic crash. Data shows over $267 million worth of positions were forcibly liquidated within 24 hours.

An additional detail worth noting during this process is the shift in institutional attitude. Ethereum ETFs experienced significant outflows, with over $327 million leaving in a single week. This isn’t retail investors dumping, but genuine institutions fleeing.

The current question is: when can ETH stabilize? From a technical perspective, if it cannot hold the $1,796 level, it may further decline to around $1,700. But more critically, can the macro narrative turn? As long as the U.S. labor market continues to deteriorate and panic in the AI sector persists, even if BTC holds at $60,000, ETH will find it hard to sustain a rebound.

For those still in the market, my advice is simple: now is not the time to leverage. Even with just 3-5x leverage, a market drop of 15% within hours can wipe you out instantly. Liquidity gaps are huge, bid-ask spreads are widening to absurd levels, and exchanges are prone to delays. Most importantly, don’t blindly "catch the falling knife"—many people tried to buy the dip at $2,000, only to get trapped at $1,796, still thinking about adding more.

That said, ETH’s fundamentals haven’t collapsed. The network is still operational, and the ecosystem continues to develop. Some savvy institutional investors are already taking this opportunity to accumulate spot holdings, planning to stake long-term. Lending platforms like Aave are seeing interest rates soar above 10%, driven by a surge in demand for stablecoin borrowing.

Ultimately, this ETH plunge is a painful but necessary system cleanup. From speculative frenzy back to technical fundamentals, from blind leverage to risk management, these shifts are beneficial for the market’s long-term health. The cost, however, has been quite heavy.