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Early coin offerings using the Ethereum blockchain are seen as one of the major catalysts for increasing Ether's prices during the past year. Now they have been charged for his decline.
Ether, the cryptocurrency of the distributed registry network, fell more than 17% on Monday, the biggest drop since March. The price has dropped to $ 285, pushing it below $ 300 for the first time since November. The digital currency is down about 60% this year, compared to the 54% slide in Bitcoin.
Ether skyrocketed over $ 1,000 in February in part when startups built projects on the Ethereum blockchain and sold digital tokens in exchange for the sales of the crowd known as the initial coin offering. Investors who bought Ether to participate in such ICOs have raised the price. Now, some of these projects are cashed in to cover expenses and the fear that the cryptocurrency bear market for this year will drag on, according to Biswa Das, which manages the quantitative cryptostocurrency fund BloomWater Capital.
"These startups are collecting a lot of money but they do not have treasury management or sufficient liquidity management experience, so they sell too early and cause a lot of pressure on the market," Das said. "The whole year went well, but now the market is so fragile that it causes a lot of pressure."
Bear Market
At the height of the Ether rally last year, where it rose more than 100 times from the low $ 10, digital money has grown so much, including 32% of the total cryptocurrency market, compared to 39% of Bitcoin at the moment. Some hypothetical Ether would end up exceeding Bitcoin as the most precious cryptocurrency, a phenomenon known as "flippening". The projects that raised funds at the top of the market will be the most obliged to sell, said Das, who helps start-ups sell ether on more exchanges, to minimize the impact on the market.
Pressures by ICOs are worsening with a general decline in the cryptocurrency market, with a market capitalization that has shrunk to about $ 200 billion from a maximum of over $ 800 billion in January, due to a tightening of regulation and slow adoption.
Concerns that the Ethereum platform will not be able to sustain sufficient transaction volumes to support mass market applications, with an increase in competitors, this year has also weighed on the 39; digital set-up. While billions are increasing, most ICOs have no functioning products, while many have been fraudulent or have had security problems.
More Pain?
"Investors are becoming more and more disillusioned with tokens and ICOs, most of whom have been launched at the top of Ethereum and we are seeing this trend in the market with downward price pressure," Spencer Bogart told Blockchain Capital LLC.
Assuming that ICO's $ 5 billion liquidations led to continued pressure on Ether's price, the negative impact was amplified due to the deterioration in sentiment and low liquidity, wrote Lex Sokolin of LLP of Autonomous Research in a note last month.
Santiment research website, which compiles a selection of projects based on Ethereum, estimates that startups have spent more than 110,000 ethers in the last 30 days.
Probably the start-ups will not be concluded with Ether, but in the longer term, the continued demand to build and maintain the ICOs on the platform should bounce the currency, D as mentioned. Ethereum remains the most popular platform for startups to create blockchain-based applications, as it is used by over 90% of projects.
"Pain is probably not over," he said.
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