On June 21, Ethereum, the world’s second-largest cryptocurrency by market capitalization, crashed as low as 10 cents—its Lowest level since May 2017—amid a broad sell-off in digital assets. The price of ETH, the native cryptocurrency of the Ethereum blockchain, has since recovered to around $225 at the time of writing, but the crash nonetheless spooked investors and sent shockwaves throughout the industry.

So, what caused Ethereum’s price to collapse so dramatically? Let’s take a look at some of the possible factors:

1. The DeFi Craze Fades

One of the main drivers of Ethereum’s growth in recent months has been the rise of decentralized finance (DeFi). DeFi is a catch-all term for various protocols and financial instruments built on Ethereum that allow users to do things like borrow and lend crypto, trade tokens without an exchange, and earn interest on their digital assets.

The value locked in DeFi protocols surged from around $1 billion in January 2020 to a peak of nearly $13 billion in mid-June, according to data from DeFi Pulse. This influx of capital helped to drive up the price of ETH as users needed to purchase the cryptocurrency to use most DeFi protocols.

However, the value locked in DeFi protocols has since plummeted by over 50% amid the sell-off in ETH and other digital assets. This could be one reason why ETH’s price has come crashing down.

2. Bitcoin’s Price Drops

Another potential factor behind Ethereum’s price crash is the sell-off in Bitcoin (BTC). Bitcoin is often referred to as digital gold due to its store of value properties, and it tends to lead the rest of the cryptocurrency market—including Ethereum—on both up and down days.

So when BTC’s price starts falling, other digital assets usually follow suit.

Indeed, BTC’s price has dropped sharply over the past week from around $9,700 to below $8,000 at the time of writing. This 7% decline likely played a role in Ethereum’s even sharper fall.

3. Negative Sentiment Around ICO Investigations

Another potential driver of Ethereum’s crash is negative sentiment around ongoing investigations into initial coin offerings (ICOs) that took place during Ethereum’s early days. ICOs are a way for blockchain projects to raise funds by selling tokens to investors; many ICOs were conducted on the Ethereum network during its first few years of existence.

However, it now appears that some ICO projects may have been engaged in fraud or other illegal activities. The U.S.

Securities and Exchange Commission (SEC) has launched investigations into a number of these projects, and this could be weighing on investor sentiment around Ethereum. After all, if investors believe that many ICO projects were built on fraudulent foundations, they may be less likely to trust other projects built on Ethereum—even if those projects are legitimate.

4. Technical Factors

Finally, it’s worth noting that there are also some technical factors that could have contributed to Ethereum’s sharp decline over the past week or so. For one thing, ETH was trading at historically high levels in recent months, which can often lead to a pullback or correction as investors take profits off the table.

Additionally, there was a large amount of open interest in ETH futures contracts on derivatives exchanges prior to the crash; this could indicate that many traders were holding long positions with leverage—meaning they had bet that ETH would continue rising—and were forced to liquidate their positions at a loss as the price started falling sharply.

All things considered, it appears that a perfect storm of factors came together to cause Ethereum’s sharp price decline over the past week or so. The DeFi craze appears to have cooled off for now, BTC’s price is down sharply, negative sentiment around ICO investigations is mounting, and there are also some technical factors at play.

It remains to be seen whether ETH can recover from this sell-off or if this is just the beginning of a longer-term trend downwards.