Initial coin offerings using the Ethereum blockchain are seen as one of the main catalysts for sending Ether’s price surging last year. Their demand and popularity rose unconventionally even for the tech industry. These ICO’s included Ponzi schemes, great gambling and speculation apps, game networks and investment management systems. Now they are being blamed for its decline.
Ether, the cryptocurrency of the distributed-ledger network, tumbled by as much 17 percent on Monday, this is marked as the biggest drop since March. The price slumped to as low as $285, pushing it below $300 for the first time since November. The digital coin is down about 60 percent this year, compared with Bitcoin’s 54 percent slide. The low slide is owed to the bad publicity that ICO’s have gained in the recent months. This includes the public relations fiasco of the possibility of them being banned in China surfacing.
Ether skyrocketed over $1,000 in February, in part as startups built projects on top of the Ethereum blockchain and sold digital tokens in exchange for ether in crowd sales, known as initial coin offerings.
Investors who bought Ether to participate in those ICO’s helped inflate up the prices. Now, some of those projects are cashing out to cover expenses. Mostly because of this year’s cryptocurrency bear market and the need to make rent that will not spare any infant industry. According to Biswa Das, who runs cryptocurrency quantitative hedge fund BloomWater Capital:
These startups are raising a lot of funds but they don’t have treasury management or enough cash management experience, so they’re selling too early and causing a lot of pressure in the market.
It was fine last year but right now the the market is so fragile that it causes a lot of pressure.
Burn out is in order?
At the height of Ether’s rally last year, it soared more than 100 times from below $10, the digital coin grew a ton. It comprised 32 percent of the total cryptocurrency market, compared with Bitcoin’s 39 percent back then. Some even speculated Ether would eventually overtake Bitcoin as the most valuable cryptocurrency, a phenomenon termed as the “flippening.” According to Das, who helps startups sell ether across multiple exchanges, to minimize market impact:
Projects who raised funds at the top of the market will be the most compelled to sell.
Pressure from ICO’s cashing out is stacking up with generalized bearishness in the cryptocurrency market. Market capitalization has drooped to about $200 billion from a high of over $800 billion in January. This has been a cause of alarm for several ICO owners and makers. As a result of the concern about tightening regulation and slow adoption the Ethereum network is likely to tone down.
Analysts worry that the Ethereum platform won’t be able to withstand enough transaction volumes to support applications for the mass-market. New entrants spring up faster than older market share holders are able to steady their profits. This speedy growth has also weighed down the digital asset this year.
While raising billions, most ICOs don’t have working products while many have been fraudulent or have had security issues. The overpopulated network now faces a bubble like issue.
Spencer Bogart at Blockchain Capital LLC, says on the subject:
Investors are increasingly disillusioned with tokens and ICOs, most of which have been launched on top of Ethereum and we’re seeing this play out in the market with continued downward price pressure,
Lex Sokolin of Autonomous Research LLP, wrote in a note last month:
Assuming ICO liquidations of $5 billion or so led to the continued pressure on the Ether price, the negative impact has been and will be magnified due to deteriorating sentiment and low liquidity,
Research portal and a support website for Ether – Santiment, compiles a selection of Ethereum-based projects, has estimated that startups have lost over 110,000 ether in the past 30 days.
And yet, Ethereum remains the most popular platform for startups to build blockchain-based applications, as it’s used by more than 90 percent of projects. Das said:
Startups are likely not done cashing out on Ether, but longer term, continued demand to build and hold ICOs on the platform should cause the coin to rebound.
The days are dark, but is it cause enough for investors and makers to shut down their bundles of tech based money making?