BloomWater Capital: ICOs Responsible for Ethereum (ETH) Price Decline
The rise of ICO's has significantly contributed to both Ethereum's price rise and now downfall.
The rise of ICO’s has significantly contributed to both Ethereum’s price rise and now fall.
As investors buy Ether to invest in ICO’s, foundations and project owners must sell the ETH to fund its operations and development, leading to Ethereum’s price decline.
Ethereum, the second largest cryptocurrency in terms of market cap dipped to its lowest point in nearly a year. The coin experienced significant loses over the past few days, reaching a low $260.
This means that ETH lost the gains it garnered following the beginning of the year’s massive bull run.
While a lot of traders and analysts are blaming the bear market which has affected the wider market, the head of the crypto hedge fund BloomWater Capital believes ICOs cashing out are the cause of Ethereum price woes.
ETH price affected by ICOs cashing out
Reports had noted that the massive number of ICOs being developed on the Ethereum network was the main catalysts behind the currency’s price gain for the most part of last year.
The cryptocurrency also generated a lot of interest due to its special function in the crypto world.
However, the usability that led to its price gain is now leading to its price decline. At this rate, ETH is losing value at a faster pace than Bitcoin.
This is because investors that were previously buying the coin to participate in ICOs have reduced due to the current market situation.
Since most ICOs that were launched over the past one year were built on Ethereum’s ERC-20 tokens, it is logical that investors are buying in with existing ETH coins.
In addition to that, Ethereum as a popular cryptocurrency has lower mining fees and faster average transaction times than Bitcoin. Previous reports have indicated that the ICO market has doubled in volume in the first half of 2018.
However, existing ICOs are cashing out in massive volumes as they look to balance the effect of the general market sinking. This leads to the forced selling of Ether, thus plunging the coin even faster than other top coins like BTC and XRP.
Biswas Das, director of BloomWater Capital is of the view naïve and amateurish development coming into the ICO industry is the reason why ETH price plummeting.
The ICO space is not as regulated as normal crypto startups, with an overall lower barrier to entry. These two factors cause a problem for investors and the entire market. He stated:
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 market is so fragile that it causes a lot of pressure.
According to Das, the fragile nature of the market at the moment means that ETH isn’t able to withstand forced selling and the downward pressure of ICOs cashing out to cover costs. This has led it to dip to a level not last seen since mid-last year.
Further, the Ethereum network’s scalability has been placed into question. The network cannot handle the transaction volume of all the ICOs being built on its network.
The Casper Upgrade will look to solve the scaling issues, which lead to slow transaction times and expensive transaction fees.
This has led to the creation of other platform-focused cryptocurrencies springing up in the interim, such as Cardano’s ADA and TRON’s TRX, to solve the problems that Ethereum’s network is still facing.
Spencer Bogart of Blockchain Capital LLC was quoted by Bloomberg as saying that general disillusionment in ICOs, added with the increase in the number of ICO scams and outright profiteering has affected Ethereum network negatively.
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.
Despite the bearish market which has been in play since the start of the year, ICOs have still managed to perform excellently, though most of them have been mashed in controversy.
According to a study published earlier this year, 80% of ICOs could be classified as scams.