For those that have been examining the cryptocurrency markets over the last couple of weeks, you’ve probably noticed something a bit weird about Ethereum.
For the last several days, Ethereum has been depreciating in price at a greater rate than the rest of the market itself – see the picture below to get a gist of what’s going on:
Source: Coinmarketcap; March 18
This was during day two of bitcoin’s most recent rally. As you can see above, the rest of the market made appreciable gains while Ethereum stagnated and even posted negative returns during that day.
Ethereum was the only coin in the top 20-30 that had posted negative returns during that day. Since then, it has also been the most ‘sluggish’ in terms of returns during this minor market rally.
So What’s Going On?
A popular and common theory that has arisen in the cryptocurrency community is that the price of Ethereum has depreciated so much in comparison to the rest of the crypto market because of ICOs.
As most of us know, ICOs typically take Ethereum in exchange for their projects because a great deal of them tend to build their tokens on top of the Ethereum blockchain. While this is a positive thing because it shows the popularity and success of Ethereum, it also means that there are large hordes of currency being held by these developers.
So, the popular theory that has arisen in the community is that these developers are now ‘dumping’ their Ethereum as it depreciates in price in order to ensure that they can maintain enough liquidity to fund their projects.
While there are several logistical reasons for why this may not be the case, it is first important that we shell this theory out in its entirety before assessing its legitimacy.
Current ETH holdings of major ICOs. Data compiled by @nic__carter.
Thanks Nic 👌 pic.twitter.com/zHfhR4Vb1e
— Matt Odell (@matt_odell) March 19, 2018
If you can see the picture above, it shows a tweet posted by a user on Twitter who tracked the wallets for the largest holders of Ethereum according to their ICO fundraising totals.
Above is a closer look at the list itself. Here is the Google Drive link where this file was created.
If one studies the pictures posted above, the theory begins to seem plausible. After all, these teams are holding a substantial amount of ether, and it stands to logic that they will have to eventually liquidate these holdings at some point in order to gain the necessary funds to continue their project.
However, it is at this point that the theory breaks down.
For Several Reasons:
- It doesn’t seem logical that teams would spontaneously dump their Ethereum because Bitcoin is in a bear market. In fact, one would think that teams would horde their Ethereum more than ever because of the greater likelihood that Ethereum will soon appreciate in price once again in the near future. Ethereum was once valued at $1200/ETH. So, companies that are dumping their Ethereum stash at this point will more than likely regret this decision once they realize that the price of Ethereum will probably climb toward that point at some point in the future.
- There’s no evidence of any massive selling of Ethereum beyond that of any other cryptocurrency. There has, however, been massive selling of Ethereum, so one must not discount that. But, it doesn’t seem plausible to suggest that Ethereum has been victim to a level of dumping that hasn’t been seen in any other coin.
- It is possible that this theory alone, which has become very prevalent in the community over the last few days and weeks, is what is responsible for the downturn because the anticipation and expectation of other crypto investors that ICOs are dumping their Ethereum is what has kept them away from the coin, leading to a self-fulfilling prophecy.
In either case, if this is what is happening, one should expect that the price of ether will soon recover in the near future and return to form. There is nothing wrong with the protocol yet as of this point, and there are no inherent issues with Ethereum that didn’t exist when it reached it’s $1200+ valuation.
Therefore, Ethereum is one of the ‘sleeper picks’ that investors in the market should take a close look at before writing off. All signs point to the fact that it is tremendously undervalued, in the author’s opinion, in comparison to its actual usage on the blockchain.