The vast number of ICOs built on the Ethereum platform were seen as a catalyst for 2017’s ether bull run. Now, lack of activity from any enterprising project is said to result in the protocol token’s price fall.
ICOs Causing the Fall
As reported by Bloomberg, Aug. 14, token issuance projects using the Ethereum blockchain were regarded as the industry’s frontrunners in advancing blockchain technology and increasing the token economy.
As a magnitude of developers swiftly jumped on the Ethereum blockchain to raise funds, Ether quickly grew in value and reached over $1,455 in December 2017–the digital currency’s all-time-high.
Nevertheless, ICO projects’ lack of solutions, coupled with Ethereum’s scalability and robustness issues, have jaded investor interest, resulting in freefalling prices. The protocol token was trading at $293 at the time of writing and is down about 65 percent for the year, compared to Bitcoin’s 56 percent decline.
‘Poor Risk Management’
Part of the plunge has been attributed to media rumors of projects cashing out their ether. Barring scam projects, ICO firms are likely cashing out funds to support research and everyday expenses while remaining concerned about 2018’s prolonged bear market.
Biswa Das, a partner at cryptocurrency investment fund BloomWater Capital, believes a lack of financial management and risk practice is to blame:
“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.”
Das added such market practices “were fine” until buyers dominated the trading market. However, market conditions have become “so fragile” that selling pressure equates to colossal losses for both retail investors and projects.
The ‘Flippening’ that Never Did
In December 2017, Ethereum’s popularity resulted in several groups claiming an eventual “flippening,” or a phenomenon that signifies the protocol superseding Bitcoin as the world’s largest digital currency.
While Ethereum did reach 32 percent of the total market cap during its peak, Bitcoin has capitalized on the bear market and regained a market share of more than 50 percent.
The crypto market cap is now less than $200 billion, down from a high of $800 billion in December 2017.
If the total amount of money raised in 2017 is assumed to be $5 billion worth of ether, analysts believe it adds to retail selling pressure in the ether trading market. The impact is likely augmented due to low liquidity and low trading sentiment.
Data collated by research website Sanbase purports a total of 110,000 ether sold in July 2018 alone; however, Ethereum remains the most popular platform for building blockchain products and a surge in this regard could see the price increase once more.
Lubin Fights Back
Meanwhile, Ethereum co-founder Joseph Lubin agreed that 2017’s price surge was a “bubble,” but the blockchain ecosystem continues to grow stronger despite tumbling prices.
In an interview with Bloomberg, Lubin said the cryptocurrency market has seen no less than six bubbles, which look like “pimples on a chart” if one looks back. The ConsenSys founder also added that developer activity on Ethereum has increased by “two orders of magnitude” since the increased price action in 2017.
Lubin said he believes continual infrastructure development and adoption indicates strong interest in the Ethereum blockchain, among hundreds of other protocols which will “co-exist” in the future.
Cover Photo by Tom Grimbert on Unsplash
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