Over the past two months, crypto-products have raised unprecedented amounts of capital, usually in the form of of transfers of ether or bitcoin.
Half way through 2017 and over $600,000,000 has been raised so far.
The recent parabolic rise in ether price has also coincided with a reduction in the supply of ether in the market as more and more ether is absorbed into ICO contracts.
The rise in price of Ether allows additional ICOs to easily raise more money (as people feel more liberal with their huge gains they have made). This further reduces the supply of ether and creates a cyclical self fulfilling possible bubble bonanza. ICOs are creating new money overnight. This is all fine and dandy if the the tech will one day be legitimate efficiency reducing workhorses of our economy, but not all these crypto-products will. Some will fail, and when they do what will happen.
Will there be a run on Fiat.
Imagine if a large crypto just failed(Augur said nope we are done we can't get this thing to work), and people decided that instead of bitcoin they would cash out their REP into USD as quickly as possible. Will this create a run on crypto markets. Remember that a lot of the capital being raised is not fiat driven, but is created from cryptos' own swelling demand. This will suck up USD liquidity causing a possible panic into other fiat currency. In this world we are in a bubble.
Or will we all just buy other cryptocurrencies.
When these products fail, will our resolve in the in other crypto-currencies stay consistent. If Augur for example throws their hands up will we all just say "so what" and switch our holdings to Bitcoin as quickly as possible and not cause a panic into fiat. If this our world I think we are not in a bubble.
It's hard to move into Fiat.
There are tax implications that many people do not want to deal with, and people are hesitant to transefer large sums of money out of crypto because of FOMO.
Will these new companies withdraw large sums of fiat and will this cause a panic.
A possible bubble bursting situation can arise if many cyypto-products start to cash in their ether reserves in exchange for fiat, causing a panic, Augur (to keep consistent) might be sitting on 900,000 ether* Imagine if they sold huge chunks of their reserves, sucking dry the fiat liquidity. The more and more companies that have ICOs and retain ether in reserves are creating a systematic risk to the market.
Demand, Demand, Demand!
The latest fall in Ethereum, is a good indication that the entire crypto world is being propped up by the demand for ether. If or when companies start selling their reserves, and if demand can eat up the additional supply, their will not be much of a panic and we will stay out of bubble bursting universe.
Only time will tell, good luck out there!
*just a guess who knows, they raised over 1 million ether in their crowdsale.