Ether experienced a significant drop, hitting a 13-month low of $1,540 on Friday, in line with the prevailing bearish trend affecting the wider cryptocurrency market. Traders are growing more apprehensive about a possible significant price correction, highlighted by the decline in ETH derivatives metrics and the increased risk stemming from the identification of a bug in the Zcash blockchain. The annualised funding rate for Ether futures dipped into negative territory on Friday, indicating an increase in interest for short positions. Despite ETH trading significantly below its all-time high from August 2025, the confidence among bulls has diminished following the liquidation of $1.28 billion in leveraged longs over a span of 5 days. Demand for downside price protection increased significantly as the Deribit ETH options put-to-call premium rose to 3.7 times on Friday. The indicator has consistently shown heightened demand for put (sell) options since Monday.
Weak confidence among holders breeds doubt, enabling bears to take charge with ease. ETH price reflected the movements of Zcash: What’s driving this trend? The notable decline in Ethereum network Total Value Locked to its lowest level since February 2024 has negatively impacted trader sentiment. Reduced deposits in decentralised applications are expected to result in a decline in ecosystem revenue, subsequently lowering the demand for ETH usage in smart contracts. Several prominent DApps on Ethereum experienced notable reductions in total value locked, with Spark decreasing by 50%, Ether.fi by 49%, EigenCloud by 41%, and KernelDAO by 39%. Some of the migration away from smart contracts can be linked to a significant flaw that permitted boundless ZEC creation in the largest ZCash zero-knowledge pool. The issue was identified on May 29 using the Opus 4.8 AI model created by Anthropic.
With the ZCash bug lingering undetected since 2022, traders are growing more anxious about the potential vulnerabilities in other blockchains and smart contracts. Recent developments in AI-powered security failure detection have sparked worries among investors, especially in light of the shocking $630 million in cryptocurrency hacks documented in April. KelpDAO’s hack resulting in a loss of $293 million and Drift Protocol’s exploit costing $280 million accounted for an astonishing 82% of the monthly losses across 25 protocols, sparking significant concern throughout the decentralised finance sector. The hacks affected multiple networks, such as Ethereum, Solana, Base, BNB Chain, Sui, and PulseChain. Currently, only 30% of the ETH supply shows a profit compared to when those coins were last traded. This setup has happened only a handful of times throughout history, with the latest occurrence taking place during the mid-March 2020 COVID crash.
Prior to that, a strong buy signal emerged in mid-December 2019, resulting in an impressive 118% surge over the course of 60 days. In a striking development, over $500 million in leveraged ETH long positions have been wiped out in a mere 48 hours, with no signs of a possible recovery in sight. The largest Ethereum treasury firm, Bitmine, is currently facing an unprecedented $10.5 billion unrealised loss, as it holds 4.5% of the entire ETH supply. ETH could potentially fall below $1,550 as investor confidence diminishes following multiple hacks in the DeFi sector and the inflationary problem identified in the shielded Zcash protocol.