Within two months, the market cap of Ethereum, the second largest crypto asset in the market, has declined from $36 billion to $14 billion. Analysts state that the current price floor of Ethereum is more stable than before.
Since early June, the market cap of Ethereum has been on a decline, along with other crypto assets and cryptocurrencies including bitcoin. The entire cryptocurrency market experienced a major correction, as the market dipped below $70 billion.
In an interview, eToro analyst Mati Greenspan told Business Insider that the decline in the market cap of Ethereum is a normal correction resulted from its exponential rise since January of 2017. Earlier this year, the market cap of Ethereum was below $1 billion.
Greenspan also noted that concerns around the ICO market and its bubble-like nature have triggered a decline in the market.
Realistically, over the past few months, the market cap of Ethereum rose at a rapid rate due to the emergence of the ICO market and the successful initial coin offerings of Bancor, EOS and Tezos. However, the vast majority of blockchain projects that conducted ICO campaigns did not present any working or viable products at the time of their campaigns and are yet to demonstrate any software that have went through alpha testing.
As a result, ICOs including Bancor that raised hundreds of millions of dollars fell in value, dragging Ethereum down along with their decline in value.
In theory, ICO is a phenomenal method of raising funds for startups and projects without the involvement of intermediaries. In order to participate in traditional investment rounds or venture capital, individuals have to be approved and become accredited investors. ICOs enable anyone to participate in funding rounds of projects. More to that, ICO is only a part of the infrastructure Ethereum provides for decentralized autonomous applications or organizations.
However, the market has become bloated due to the emergence of projects without viable products. The vast majority of software have not even demonstrated their potential with actual market measures such as user base and stable revenue streams.
Ethereum has created an efficient and secure ecosystem for decentralized applications. However, none of the decentralized applications launched on top of the Ethereum protocol have actual user bases and successful commercialized platforms. Hence, until Ethereum secures active users and sees the emergence of successful decentralized applications, its price and market cap should not be overvalued by investors.
Although many traders were caught off guard with the recent correction of the cryptocurrency market and Ethereum, a major correction has been long overdue and many analysts have predicted a major correction since last year.
Bitcoin and security expert Andreas Antonopoulos explained that the recent correction of bitcoin price is also a correction of its exponential growth and the scaling debate or the possibility of chain split did not play a major role in driving its price.
“The ‘reason’ bitcoin price is dropping is the rapid 1500% rise in 2 years, esp. the last 3 mo. The ‘scaling debate’ is just a trigger. Relax,” said Antonopoulos.
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Last modified: May 21, 2020 9:40 AM UTC