What’s behind the massive 87% drop in Ethereum?

The past 24 hours has seen Ethereum plummet to $186, down 87% from its all-time highs of $1385 in January of this year. The last time ETH was this low was July 2017. What’s behind the falls?

Forced selling of ETH by ICOs

ICOs raise a majority of their funds in Ethereum, and for the most part, their funds stay in crypto. This has proved to be a big mistake. If an ICO raised $15 million in January, it would have little over $2 million today.

HODLing might be a good plan for anyone who can afford to ride out the tough times but these ICOs have business plans, with fixed fiat-based costs such as office rent, salaries and other running costs – all of which still need to be paid every month.

If they don’t have the fiat funds and don’t have money coming in yet – very few ICOs have a product to sell – they have no choice but to sell ETH whatever the price. This is a constant downward pressure on ETH.

ICOs going out of vogue

ICOs liquidating is nothing new, but earlier this year it was countered by new ICOs raising funds, bringing more money into Ethereum to pledge against the ICO. The ICO market itself is in a downturn, and ETH’s fall is compounded by some newer ICOs raising money on alternative platforms such as NEO, Stratis, EOS and NEM.

Short positions on BitMEX

While the FUD is strong, traders are making money on the continued decline of ETH by short trading on BitMex. The more it falls, the more they make – and all indicators are that the current bets are big.

Failure of dApps

Ethereum launched in 2015 with the promise that its technology heralded a new kind of software application – completely decentralised without any possibility of downtime, censorship or third-party interference.

dApps held great promise and ICOs like Augur raise millions. However the number of daily users are pitiful – last month, CoinDesk reported Augur had only 66 users in 24 hours and overall dApp usage is in the thousands. Ethereum as a software platform has been a failure, it’s expensive, slow and inflexible.

What does the future hold?

At the core of the current downturn is a lack of fresh funds coming into crypto from fiat – either from retail investors or institutional. Without fresh funds coming in, the market is spiralling down the plug hole – but there is hope.

On the retail side, very few ICOs have launched their products. However, innovation in the ICO space is real and there are a lot of exciting projects in the pipeline. As soon as one takes off, it will bring new funds into crypto and revive the market.

On the institutional side, we are playing the regulatory waiting game. The SEC (and other regulatory authorities such as the FCA) cannot stall forever and clear guidance will come. Confidence is high that institutional investment will come in the form of ETF trading, which will both legitimise the market and reduce its volatility.

Blockchain technology itself is still in its infancy. Ethereum may get the boost it needs with product releases coming soon from its roadmap – the most talked about being the move to Proof-of-Stake (PoS).

The strongest will survive

Amongst the community, there is positive sentiment that the current downturn will at worst shake out bad projects and ensure only the best survive. Crypto isn’t going away anytime soon, and what will come out of the other side of the ongoing bear market will be far stronger, ready to transform the world.