Key takeaways:
Ether derivatives metrics flip to a heavily bearish bias as cascading liquidations cut off a relief bounce. A critical ZCash bug discovered by AI triggers widespread fears of contagion, driving a contraction in Ethereum TVL.
Ether (ETH) plummeted to a 13-month low of $1,540 on Friday, following the bearish trend across the broader cryptocurrency market. Traders now fear a deeper price correction, given weakness in ETH derivatives metrics and heightened risk after a bug was found in the Zcash blockchain.
ETH perpetual futures annualized funding rate. Source: Laevitas
The Ether futures annualized funding rate flipped negative on Friday, indicating increased demand for short positions. Even with ETH trading 67% below its all-time high from August 2025, confidence among bulls has been shattered after $1.28 billion in leveraged longs were liquidated over 5 days.
ETH options premium put-to-call ratio at Deribit. Source: Laevitas
Demand for downside price protection surged as the Deribit ETH options put-to-call premium spiked to 3.7 times on Friday. The indicator has consistently shown excess demand for put (sell) options since Monday. Low conviction among holders fuels uncertainty, giving bears an easy path to take control.
ETH price followed Zcash: Why?
The severe decline in Ethereum network Total Value Locked (TVL) to its lowest since February 2024 has also negatively impacted trader sentiment. Smaller deposits in decentralized applications (DApps) tend to reduce ecosystem revenue, ultimately reducing demand for ETH use in smart contracts.
Ethereum network DApps Total Value Locked, USD. Source: DefiLlama
Some of Ethereum’s top DApps experienced severe TVL contractions, including Spark (-50%), Ether.fi (-49%), EigenCloud (-41%), and KernelDAO (-39%). Part of the exodus from smart contracts can be attributed to a critical vulnerability allowing unlimited ZEC minting in the largest ZCash zero-knowledge pool. The bug was found on May 29 using the Opus 4.8 AI model from Anthropic.
Given that the ZCash bug had existed since 2022 without anyone ever detecting it, traders fear that other blockchains and smart contracts could also be at risk. Advances in AI-driven security failure detection have put investors on high alert, especially after cryptocurrency hacks totaled $630 million in April.
KelpDAO’s $293 million hack and Drift Protocol’s $280 million exploit accounted for 82% of the monthly losses across 25 protocols, triggering panic across the decentralized finance (DeFi) industry. The hacks occurred across multiple networks, including Ethereum, Solana, Base, BNB Chain, Sui and PulseChain.
Percent of ETH supply in profit since they last moved. Source: Glassnode
Currently, only 30% of the ETH supply is profitable relative to when those coins were last moved. This setup has occurred only a few times in history, with the most recent instance being the mid-March 2020 COVID crash. Prior to that, this strong buy signal also emerged in mid-December 2019, preceding a 118% rally within 60 days.
Related: FG Nexus offloads additional $17.8M Ether as losses top $100M
With over $500 million in leveraged ETH long positions liquidated in 48 hours, there are no signs of a relief bounce. The largest Ethereum treasury firm, Bitmine (BMNR US), is sitting on an unprecedented $10.5 billion unrealized loss, as the company holds 4.5% of the entire ETH supply.
ETH could slide further below $1,550 as investor confidence deteriorates following multiple hacks across the DeFi industry and the inflationary bug found in the shielded Zcash protocol.
