In recent weeks, stories of waste from the ETF, decrease in user numbers and problems with fundamentals, have undoubtedly contributed to the current cryptocurrency market and have been the driving forces behind a sale of digital goods.
To add to the list a new topic that could dig a still deeper cryptic price pit is emerging – the liquidation of cryptographic holdings by ICO projects.
Fundraising – crypto killer app?
Between the middle and the end of 2017, one of the main factors of the exponential increase of BTC and ETH, was their use as liquidity for the realization of ICO projects. ICO projects were designed with smart contracts ERC20 . They gave project developers access to people interested in supporting their solutions through a simple transfer of criptos in one form to another, all hosted on the Ethereum network.
The intelligent standard contract of the ERC20 protocol led to the emergence of the Ethereum blockchain and created one of the first real-use cases for smart blockchain contracts – as a fundraising tool. Given the popularity and accessibility of Ethereum and Bitcoin, they tended to be the tokens of choice for ICOs.
However, in recent times the volatile nature of cryptographic markets has meant that ICO denominated increases in ETH and BTC are starting to see the value of their holdings significantly decrease with the collapse in prices.
For example, HDAC claims to have raised US $ 258 million value of BTC during its Nov / Dec 2017 ICO. On the last day of ICO the price of BTC was $ 13.670. Nine months later it is worth less than half, currently trading at $ 6.260.
This means that if the HDAC project has maintained its holdings in BTC, rather than at some point liquidate for fiat or transfer it to a stable digital currency such as USDT the value of the ICO now would be worth more than $ 100 million less
This scenario is worrying for many ICO projects, which will probably start to have cold feet on the decreasing value of the crypt they accumulated during their raises.
The frantic and unstable nature of cryptographic markets exaggerates this problem and contributes to the inconvenience of projects. The longer the wait for moving cryptography on their books, the more potential losses are due to the severity of short-term price fluctuations
Furthermore, the nature of bearish financial markets means that if ICO begin to download their encryption holdings and traders take flight from large sales orders – potential losses are inflated because the growing FUD contributes to slippage
In the short term, this means a potentially precarious situation for investors crypto. ETH and BTC currently account for 68% of the crypto market capitalization which means that any movement in the price affects the whole sector.
An Alternative Perspective
While the current bear race has probably influenced the titles of many of the ICOs in 2017 and 2018, many of them were heavily capitalized and the overwhelming majority of them ought to have have sufficient funds to exit the current market.
The average amount collected through 122 ICOs recorded in 2018 so far is ~ $ 53.3 million, with a median value of $ 11.3 million (The average value is inflated by EOS ICO , which earned over $ 4 billion).
Compare this with the traditional increase in risk capital where the first phase is normally a seed round, with 15 or less investors increasing from $ 500k to $ 6 million for market research and early product development. Even with his trunk down by half, the average ICO should still be sitting on a stack of money equivalent to that of a well-capitalized start-up company.
In the case of such a startup VC, once the initial product the development phase was completed and the project was deemed sufficiently solid, they enter a series A, in which a larger pool of venture capital companies invests between $ 2- $ 10 million for a shareholding in the company.
Overall, this is a more staggered milestone-centric fund-raising process, with no immediate access to the "lake of liquidity", as was the case with ICO re-launches. The founders of the ICO project could probably learn something from that process.
Overall, while it is true that these ICOs will probably have to do some tightening, it is not a bad thing as it should focus the founder's mind on product delivery and profitability – and not before by then many would say.