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One of the most salient plunges in the crypto market over the past month (and it was a really rough month for the crypto market) was of the second largest cryptocurrency by market capitalization, Ethereum (ETH).
Over the brief course of a month, the distinguished digital currency, which is especially famous for its advanced smart contract protocols, has taken a nosedive from a trading price of about $500 to a chasm of around $260 – nearly a 50% downslide in a very short period of time. In terms of market cap, Ethereum still safely holds the prestigious position of the deputy (nearly $30B), second only to Bitcoin (BTC) that confidently leads with a $110B valuation, and almost three times larger than the cryptocurrency in the third place, Ripple (XRP) that’s worth about $11B. Of course, it probably wouldn’t console its investors who have seen the value of their digital asset sheds over $20B in just a few weeks.
Most of the blame for this massive decline seems to be associated with initial coin offerings (ICO) that, in general, heavily rely on the Ethereum blockchain due to its unique and elaborated attributes.
Ether skyrocketed over $1,000 in February in part as startups built projects on top of the Ethereum blockchain and sold digital tokens in exchange for ether in crowd sales known as initial coin offerings. Investors who bought Ether to participate in those ICOs drove up the price. Now, some of those projects are cashing out to cover expenses and on concern this year’s cryptocurrency bear market will drag out, according to Biswa Das, who runs cryptocurrency quantitative hedge fund BloomWater Capital.
ICOs had catapulted the ETH price to high peaks, and now as fear and anxiety are taking over the crypto market, ICOs that wish to cash out are dropping it to the abyss; that actually makes sense and can certainly explain why ETH is falling much harder than other cryptocurrencies. Yet, one has to wonder if this steep slide is justified or perhaps we’re just seeing another herd effect of hysteria. At least according to an assessment of the crypto research site, Santiment, at this current price range (about $280) the answer is far closer to the latter option: “Combined with increased negative mood (looking for the “bad guys” – blaming ICOs for dumping) the ETH might be nearing the bottom.”
Another prevailing intriguing quandary is how the recent ETH fall will impact the development of Ethereum. According to Ethereum co-founder, Joseph Lubin, trading speculators had pushed the ETH price up and created a bubble, and because of it Ethereum could still endure the sharp depreciation of its worth.
Lubin, who is the chief executive officer at ConsenSys Inc., said developer activity rose by “two orders of magnitude” since prices jumped last year. He added that “trader types” are driving volatility and isn’t concerned that the slump in prices will slow down the development of core infrastructure and adoption.
Even in the exceptionally volatile arena of crypto, Ethereum’s price fluctuations still appear radical, and while many pundits offer conjectures and predictions, a violent movement to any direction would not come as a surprise.