Ethereum (ETH) has been one of the most underperforming in the market since the crashed at the start of 2018. From all-time highs to a significant reduction in our portfolio by over -80%, Let’s take a deep dive into the current issues surrounding the 2nd largest blockchain in the world.
It can be seen that ETH has been losing more than double in value compared to the entire cryptocurrency market. In the past 6 months, ETH’s value has shrunk by close to 70%.
Biggest Hindrance: ICO Sell-offs
Perhaps the biggest hindrance to Ethereum’s price is the heavy selling pressure by Initial Coin Offering (ICO) projects that raised huge amounts of funds – denominated in ETH – back when the ICO craze started in 2017. Over $ 6.2 billion USD was raised by a total of 875 ICOs back during the bull run in 2017. Here is a graph that shows the exponential increase in ICO fund-raising in 2017
The second half of 2017 saw ICO funding grew tremendously. This meant that ICOs raised a tremendous amount of funding in ETH coins. The reason why most ICOs raised money in the form of ETH is that the majority of new ICO projects are built on the Ethereum blockchain, and therefore accepts ETH as the initial investments for their ICO in return for the project’s native tokens. Ethereum is the most popular (and one of the oldest) platform for new ICO projects looking to build their applications on and issue their own native tokens.
Out of 1,107 tokens in existence, more than 87% – 966 tokens to be exact – are issued on the Ethereum blockchain. However, it comes with a cost.
Ethereum’s popularity has a disadvantage; ETH coins face a huge sell pressure due to ICOs raising money in ETH and thereafter selling it down the road to meet their expenses.
Especially when the market turned bearish since the start of 2018, ICO projects have been dumping their ETH to not only meet expenses but also to manage their risks amidst the bear market. This selling pressure has been a constant factor that has caused ETH’s value to underperform the entire market.
Reduction in ICO Selling Pressure
It was no surprise that the largest ICO in history was issued by EOS (EOS), which raised a whopping 7,211,776 ETH (the equivalent of $4 billion) and represented close to half of the total ETH raised amongst the pool of 221 ICOs.The entire ETH raised from 222 projects (including EOS) initially stood at over 15 million. Throughout the year, however, ICOs started to liquidate their ETH stash, leaving only a quarter of the total ETH raised that has yet to be sold or transferred out. There is, therefore, an ETH balance of 3.8 million ETH tokens, which roughly translates to approximately $830 million.
This is positive news since only a smaller balance of ETH held by ICO tokens across the board would generally mean lower selling pressure. It is also worth mentioning that EOS positions itself as a direct competitor of Ethereum and has liquidated all of their ETH coins, which is excellent news.
In A Nutshell
ICOs had started offloading or selling away their ETH stash in order to manage risks and pay for operational expenses throughout 2018. Only a quarter of total ETH – raised in 2017 and early 2018 – is left to be spent. This would naturally reduce the selling pressure of ETH prices since the majority of ETH coins collected through ICOs have been spent. We can expect to see a sharp rebound of ETH prices thereafter. With a slew of fundamental news coming up that include the testnet implementation of Constantinople, scalability progress and potential futures listing, things are looking great for Ethereum.