It seems that every other month I find myself writing an article about the causes behind either the astonishing raise of sharp decline of cryptocurrencies. Certainly, as a tradable asset, digital currencies swing from bull to beat markets and back faster than any other security. Today, I would like to explore some of the factors influencing the rapid declined of one of the most influential cryptocoins in the market: Ethereum.
As a digital currency, Ethereum’s Ether has become, together with Bitcoin and Ripple’s XRP, of the three currencies that can move the entire market. That means that bullish or bearish moves in Ether are likely to impact the market in positive or negative ways respectively. Additionally, Ethereum has become the most popular platform in the space for the implementation of blockchain solutions. Until last month, Ether had enjoyed an super-bull run in the market with its price raising above the $400 mark which represents an increase of over 2000% in just seven months. However, in the last few weeks, the price of Ether has gone down drastically dipping below $150. Those value swings can scare the most bulling investor out of the digital currency space. But it shouldn’t once we understand some the fundamental causes behind the decline.
1 — The Crash
Recently, notorious fake news site 4Chang published a “press release” detailing the death of the founder of Etehreum in a car accident. The news coincided with a fairly large sell order for Ether hitting the exchanges with caused the price of the cryptocurrency to free fall until hitting about 10 cents (yes that’s cents not dollars). After a while, the price of Ether bounced back to more stable territories. That type of movement resembles classic pump-and-dump( maybe dump-and-pump in this case ;) ) scams in penny stocks with a 100x higher volatility factor. That’s enough to make anybody to reconsider their investment in Ether.
2 — The Hack
You might have heard the news that, a few days ago, hackers successfully penetrated cryptocurrency exchange CoinDash and stole $7 million worth of Ether. The hack cleverly took advantage of a vulnerability in CoinDash’s planned initial coin offering(ICO) in which the attacker was able to change the address to which investors needed to send the funds. Paradoxically, CoinDash still was able to raise over $6.4 million in the ICO. Needles to say that situations like this one tend to cause panic among Ether currency holders.
3 — The Correction
Part of the reason fro Ethereum’s price drop has been a simple and necessary correction in the digital currency market. Like many of you, I am very bullish about Ethereum and digital currencies in general but no security trades upwards for such a long time without some correction. Part of the reason that Ether’s price rose so fast was typical investor FOMO behavior( see my previous article about this topic) and, consequently, a correction was expected and, frankly, welcomed if it wasn’t for the sharp decline.
4 — The ICO Cash outs
A more subtle but incredibly important factor on Ether’s decline is related to startups cashing out after an ICO. for many reasons, most ICO are based on the Ethereum platform which creates a indirect link between their performance and the price of Ether. While the funds risen via ICOs have been nothing short of remarkable, many startups such as EOC( raised $200 million on ETH) and TenX( $67 million on ETH) have offloaded part of their ETH revenues which has put downward pressure of the cryptocurrency.
5 — FOBL
Fear of being last is a traditional behavior in panic-sales of financial securities. If you are not investing in ether for the long term, you are very likely to be influenced by the price decline and decide to sell part of your Ether holdings which, in turn, causes the price of the digital currency to go further down.
I believe most of this factors will be gradually addressed in the near future as the Ethereum markets gets more resilient. I am very bullish about the value and future of Ethereum and, most likely, we will be here in a month writing an article explaining the new remarkable bull run of the digital currency. Fun times…