What’s driving Ether prices down from the ether?

Ether bear market

What’s driving Ether prices down from the ether?

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Ethereum logoCryptocurrency market capitalization across the board has dropped to near record lows and analysts are trying hard to make sense of the persistence of the bear market.

In the case of Ether, analysts and industry leaders are pointing to initial coin offerings (ICOs) as a source of its recent $285 price which dropped below $300 for the first time since November 2017.  In 2018, Ether has decreased by 60% and bitcoin by 54% in value.

90% of ICOs launched on Ethereum platform


ICOs boomingThe culprit seems to be ICOs.

A large number of the $10 billion in ICO funds raised in 2018 so far, used the Ethereum platform which required the purchase of Ether tokens by investors. Because such a large number of projects used Ethereum, the price for the ether token increased dramatically and now is under pressure as ICOs may be cashing in to continue to fund their projects according to a report in Bloomberg.

“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,” said Biswant Das, head of hedge fund BloomWater Capital. “It was fine last year but right now the market is so fragile that it causes a lot of pressure.”

Ether held 32% of cryptocurrency market at one time


At its height earlier in 2018, Ether comprised 32% of the cryptocurrency market value compared to 39% by bitcoin.

The ICOs that raised money at the height of prices appear under pressure to sell in order to fund projects, putting downward pressure on a struggling cryptocurrency bear market.

Jimmy Zhong, CEO of enterprise-grade blockchain infrastructure IOST said, “Some of this price decline may be because the platform that Ethereum has been promising since its launch is still so far away. Bogged down by its scaling issues and clearly struggling to keep up with platforms that aren’t hampered by legacy technology, there are cracks showing in Ethereum’s armor. This is one of the reasons that decoupling from Ethereum is such a big deal and why companies are starting to show interest in developing their own blockchains.”

Other Ethereum concerns


Regulations are an ICO maze

Like bitcoin, the Ethereum platform has struggled with concerns about scalability, security, regulatory challenges and slow adoption in the marketplace. Because of its use as a utility token, the US Securities Exchange Commission (SEC) recently declared Ether is not a “security” under its regulatory oversight but that is not seen as a strong enough signal to prevent further market cap pressure.

Autonomous Research reports as much as $5 billion may have been liquidated, adding additional pressure to negative market sentiment and lack of liquidity.

Challenges remain


Spencer Bogart, CEO of Blockchain Capital LLC said, “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.”

While Das remains optimistic, “the pain is probably not yet over.”

Andy Bromberg, co-founder of Coinlist, a platform for the first digital asset companies to manage their token sales said, “Ethereum’s price volatility is a result of market pressures, not anything more fundamental around the technology — which is what the highest-quality projects care about. The best token issuers are heads down focusing on building their products and businesses, and not looking up at the prices.”

Josh Fraser, co-founder of Origin, an open-source blockchain platform for creating peer-to-peer marketplaces agreed with Bromberg, “We’ve been through this cycle before and we’ll go through it again. The hype and exuberance of last year have passed, but meanwhile, the real work continues. Ethereum developer tools like Truffle are seeing a record number of downloads, companies like Origin are recruiting some of the best engineers in the world and a remarkable amount of innovation is still happening every day in the Ethereum community.

In the short to medium term, the Etherium platform still remains one of the easier, less expensive ways for ICOs to raise capital but the road ahead remains bumpy.