What happened? Cryptocurrencies plummeted, with Bitcoin once approaching the 58,000 mark!

In the early trading session on Wednesday, cryptocurrencies generally fell, with the largest digital currency Bitcoin dropping more than 5%, breaking below the $60,000 mark and approaching a low near $58,000. Ethereum experienced a sharp decline at one point, dropping by 10% intraday.

Federal Reserve Chairman Powell gave the clearest signal last Friday that the Fed is planning to cut benchmark interest rates from the highest level in over two decades, with major tokens retracing. Institutional analysis believes that major tokens are digesting Powell's signal from last week.

Tony Sycamore, market analyst at IG Australia Pty, said that for many assets, "the Fed is basically in play," making Bitcoin breaking below the 200-day moving average price "a bit worrying."

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

Ethereum has yet to regain the ground lost in early August when the cryptocurrency market and global stock markets suffered a severe setback due to the unwinding of yen carry trades.

Muneeb Khan, Managing Director of Kraken OTC, stated in an email that while the Ethereum blockchain dominates decentralized financial activities, its native token Ethereum "is looking for new narratives to drive its continued growth." Meanwhile, "the initial enthusiasm for Ethereum's potential deflationary properties seems to have waned."

While Bitcoin has a fixed upper limit of 21 million coins, Ethereum's supply is not fixed, with the total number of tokens in circulation increasing for most of this year.

Cici Lu McCalman, founder of Venn Link Partners, stated that platforms like Arbitrum and Optimism—also known as Layer-2 chains—are helping Ethereum scale, now starting to erode transaction fees on the network.

Lu mentioned that Ethereum relies on "burning" a portion of the transaction fees it earns to permanently remove tokens from circulation. Therefore, diverting fees to Layer-2 platforms causes Ethereum to become "inflationary rather than deflationary."

Research firm Messari said in a report on Monday that the shift of economic activity from Ethereum to an increasing number of Layer-2 chains has raised "some concerns and broader questions about what Ethereum should focus on in development and what the future of the asset ETH will look like."

Lu added that the industry focus is shifting from DeFi projects to so-called meme coins, which is also part of the reason why Ethereum has underperformed compared to its competitor Solana. The Solana blockchain is popular among meme coin issuers