Ethereum (ETH ($3,934.09)) fell under the $4,000 mark this week, signaling a wave of caution spreading across the cryptocurrency market. At the time of writing, the second-largest digital asset by market capitalization was trading near $3,950, down more than 6% in the past 24 hours. This slide came alongside broader weakness in the digital asset sector, where both leading and mid-tier tokens have been hit by risk-off sentiment.

The drop in ETH is not happening in isolation. Investors across traditional and crypto markets are bracing for the possibility of tighter monetary policy, with U.S. Treasury yields rising and equity markets showing mixed performance. Rising global risk aversion has pushed many traders into safer assets, leaving cryptocurrencies exposed to selling pressure.

Ethereum, often seen as a bellwether for the broader market beyond Bitcoin, has faced particular challenges given its close ties to DeFi, NFTs, and other on-chain sectors. Lower transaction volumes and subdued liquidity have reinforced concerns about the sustainability of the recent rally that pushed ETH above $4,200 earlier this month.

Institutional Inflows and ETFs Under Scrutiny

Another factor weighing on sentiment is cooling enthusiasm around crypto-linked investment products. Recent data show that inflows into Ethereum-focused exchange-traded products have slowed, with some funds even reporting mild outflows. This suggests that institutional players, who had been steadily increasing their exposure in the summer, are now reassessing short-term risks.

Market watchers note that Bitcoin ETFs continue to capture the majority of investor attention, leaving Ethereum funds in a weaker relative position. While the long-term case for Ethereum as a programmable blockchain remains strong, the near-term appetite from large capital allocators appears to be fading.

Ethereum’s network activity has also softened in recent weeks. Daily active addresses and transaction counts have dropped by more than 10% compared to the previous month, according to on-chain analytics firms. Gas fees, which often spike during periods of heavy usage, remain relatively low—a sign that demand for block space has cooled.

This moderation in on-chain activity is consistent with the broader lull in decentralized finance and NFT ($0.00) markets, where volumes remain well below their peaks from earlier in the year. Traders are increasingly cautious, avoiding aggressive leverage and speculative positions until signs of renewed demand emerge.