Within a period of two weeks, from August 1 to August 14, the price of Ether, the native cryptocurrency of the Ethereum network, dropped by 44 percent.
In 14 days, the price of Ethereum plummeted from $470 to $260, reaching its lowest point in 2018 by falling below the $300 mark for the first time since early November, 2017.
The entire cryptocurrency market experienced a steep decline in valuation, losing nearly $150 billion of its valuation in a month. But, Ether, which performed particularly well against the US dollar amongst other major cryptocurrencies like Bitcoin and Bitcoin Cash, quickly became one of the worst performing digital assets in August.
Today, on August 14, even after suffering such a large drop in price, Ether dropped 18 percent of its value against the US dollar, declining from $300 to $260 within a 12-hour span.
While other cryptocurrencies did experience major drops in value, Bitcoin for instance, only lost 6 percent of its market cap against the US dollar.
Throughout this week, many analysts including Eric Wall, a lead cryptocurrency researcher at fintech company Cinnober, stated that blockchain projects which raised hundreds of millions of dollars in Ether in the past 12 months dumped the digital asset on the public cryptocurrency exchange market, creating a domino effect across major exchanges.
“The problem when you give millions of ETH to ETH competitors is that they can unload the ETH on the spot market and short ETH on the futures market before that, so they’re not only securing the funding but also manipulating the underlying spot market in favor of their shorts,” Wall said.
It is important to acknowledge that the amount raised by ICOs in their token sales do not necessarily mean new capital coming into the market but rather existing capital stored in major cryptocurrencies like Bitcoin and Ether moving to ICOs.
Hence, if ICO participants allocate millions of dollars in Ether to token sales, and the developers conducting the token sales dump the capital raised in Ether on the cryptocurrency exchange market, it indirectly becomes a massive sell order.
Consequently, the Ethereum exchange market has suffered in the last three months, as ICOs continued to dump large amounts of Ether on the market.
This week, Arthur Hayes, the CEO of cryptocurrency exchange BitMEX, revealed that in merely a week, BitMEX became the largest exchange for ETHUSD trading, as its 50x leveraged ETHUSD swap has evolved into the most liquid Ethereum trading pair in the global market.
Given the overly strong downtrend of Ether and the rest of the market, it is evident that the increase in the activity of ETHUSD trading pair hosted by BitMEX demonstrates a rise in the number of shorts placed by investors that have lost confidence in the short-term trend of Ether.
While it is difficult to conclusively state that ICOs led the price of Ether to crash, it is obvious that the liquidation of the capital raised by token sales played a major role in creating a strong downtrend for Ether.
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Last modified: May 20, 2020 6:07 PM UTC