Crypto liquidations, Ethereum’s headaches, and the outlook for digital assets
The Sandbox Daily (2.5.2025)
Welcome, Sandbox friends.
Today’s Daily discusses:
crypto liquidations, Ethereum’s headaches, and the outlook for digital assets
Let’s dig in.
Blake
Markets in review
EQUITIES: Russell 2000 +1.14% | Dow +0.71% | Nasdaq 100 +0.42% | S&P 500 +0.39%
FIXED INCOME: Barclays Agg Bond +0.53% | High Yield +0.26% | 2yr UST 4.191% | 10yr UST 4.428%
COMMODITIES: Brent Crude -1.98% to $74.69/barrel. Gold +0.23% to $2,861.1/oz.
BITCOIN: -0.61% to $96,370
US DOLLAR INDEX: -0.33% to 107.602
CBOE TOTAL PUT/CALL RATIO: 0.84
VIX: -8.37% to 15.77
Quote of the day
“Never take criticism from someone you wouldn't take advice from.”
- Unknown
Crypto liquidations, Ethereum’s headaches, and the outlook for digital assets
Last weekend President Trump issued his latest round of Executive Orders announcing tariffs against America’s largest trading partners. The response in financial markets was swift as the global stage devolved into a temporary state of chaos.
Trump’s tariffs were a massive blow to crypto markets, sparking peak-to-trough drawdowns of -13% and -37% for Bitcoin and Ethereum, respectively. These moves lower were further exacerbated by cascading liquidations from leveraged traders.
Mass liquidation events by the various exchanges are a quick and cruel reminder to the aggressive price behavior of crypto markets.
Almost immediately, most cryptocurrencies saw anywhere from 30-60% of their open interest wiped out – a significant reset in investor positioning.
As the dust has settled, cryptos have recovered much of the losses sustained this week.
And yet, the majority of altcoins still find themselves down 50% or more from their December/January highs. The blue-chips also find themselves in healthy drawdowns, as Bitcoin hovers around $97,300 (-11% from ATHs) and Ethereum around $2,700 (-32% from ATHs).
Much attention among the crypto community remains focused on Ethereum’s continued underperformance versus bitcoin, as well as other altcoins, over past months as the crypto market surged into and after the U.S. election.
In fact, Ethereum’s share of total crypto market cap has declined to a 4-year low.
So, what explains Ethereum’s underperformance?
Intense competition faced from other blockchains (in terms of lower fees, more scalability, etc.) and the lack of a compelling narrative like that for Bitcoin (being pursued as store of value or digital version of gold) have both played a significant role.
Despite Ethereum’s Dencun Upgrade introducing blobs to reduce fees and enhance its scalability, activity migrated away from the main Ethereum network to its layer 2s, negatively impacting Ethereum’s main network.
Additionally, competitive pressures have led some decentralized applications (dapps) to migrate from Ethereum to other application-specific chains for better performance, bypassing Ethereum’s main chain.
Notable examples include Uniswap, dYdX and Hyperliquid, with Uniswap’s upcoming shift to Unichain being particularly significant. Uniswap is one of Ethereum’s largest gas consuming protocol, and a migration from Ethereum could induce substantial loss for Ethereum’s fee pool.
In spite of its own network challenges, one cannot deny the larger forces at work.
The cryptocurrency bull market that began in November 2022 continued into 2024 and is primed for another strong year in 2025.
President Trump is the first sitting President to publicly endorse and own crypto. Establishing a Crypto Task Force, creating a Bitcoin Strategic Reserve, and inserting venture capitalist David Sacks as the White House crypto czar are material developments toward “strengthening American leadership in digital financial technology.”
In January 2024, the SEC approved a spot Bitcoin ETF which captured $37B in net inflows – arguably the most successful ETF product launch in history. The SEC then approved a spot Ethereum ETF in July 2024. Expect the SEC to further the industry's adoption with ETFs in other primary tokens, such as Solana and XRP.
Gary Gensler’s departure from the SEC has shifted the regulatory landscape meaningfully. A material reduction in regulatory barriers is forthcoming.
Michael Saylor, CEO of Strategy, has been a prominent advocate for Bitcoin and its use as a corporate reserve asset.
While his stance has fluctuated over the years, Elon Musk has amassed major stakes in Bitcoin on the Tesla and SpaceX balance sheets.
Brian Armstrong, CEO of Coinbase, is the blue-chip CEO of crypto CEOs. His approach to regulation and advocacy for digital assets has been a guiding light for an industry plagued by numerous scandals, black swan events, and despicable leadership.
Larry Fink, CEO of Blackrock, underwent a sobering about-face and helped foster the public launch of both Bitcoin and Ethereum ETFs, opening the floodgates for institutional capital.
One can argue the United States is positioning itself to be the world's most pro-crypto market for the foreseeable future.
A rising tide lifts all boats, be that Bitcoin, Ethereum, or any other digital asset.
Sources: Bloomberg, The Block, CoinDesk, J.P Morgan, CryptoQuant
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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