Markets love to confuse cause with effect, and a sharp price drop can look like a verdict on an asset’s future when it might not be. And in the context of Ethereum’s (CRYPTO: ETH) decline during the Oct. 10-11 flash crash, that issue is currently at the front of the minds of many investors.
Prices slid hard in a matter of hours, and by the end of Oct. 11, the coin was down by 15%. It’s still down about 9% from its price 30 days ago (as of Oct. 22). Is Ethereum still worth buying, or does its lack of buoyancy after this flash crash suggest that there are deeper problems starting to show?
What actually broke on crash day
Let’s get one thing straight right off the bat: The flash crash was triggered by the Trump administration’s announcement of new tariffs on China, which obviously had nothing to do with Ethereum.
In other words, this was not a software incident, a protocol exploit, or a chain halt so much as it was a marketwide event prompted by a pullback in price that eventually spiraled out of control.
The pullback caused highly leveraged crypto traders on decentralized exchanges (DEXes) to get their positions liquidated for collateral, while both decentralized and centralized exchanges (CEXes) saw their market makers withdraw their liquidity when they themselves came under threat. This caused the price floor of many altcoins to simply evaporate. While much of this process occurred on Ethereum by virtue of it and its Layer-2 (L2) networks hosting many DEXes, the chain itself wasn’t part of the problem.
And, while some chains and exchanges collapsed under the load during the crash, Ethereum itself did fine. That means it was able to bear the heavy volume load, though its gas (user) fees did spike by about 1,170% on Oct. 10 compared to a day prior, which is to be expected.
Furthermore, off-chain access for mainstream investors in the traditional financial sector via exchange-traded funds (ETFs) remains intact, so outside capital can continue to flow in. And despite the significant fallout in Ethereum’s decentralized finance (deFi) ecosystem, most of which still trades at a fraction of the price it did before the crash, the system appears to be self-stabilizing, which is to say that it’s still working as intended.
Why the long-term thesis for Ethereum is still strong
Ethereum weathered the crash fairly well, and the investment thesis for buying it remains unchanged.
