Ethereum’s price has been falling. Scratch that, it’s crashing hard. From $400 ETHUSD in June to $200 ETHUSD today; that’s a 50% drop. Needless to say, there’s been a lot of buzz and panic as investors scramble to salvage their portfolios.
So why exactly is the market tumbling? I’m going to try and answer this question in this blog post.
First of all, I want to stress that Ethereum’s fundamentals have not changed. There is no bad nor good news. Ethereum’s underlying technology is still sound and revolutionary, its development road map remains the same. You’ll find that many crypto vloggers echo this sentiment as well.
So if Ethereum hasn’t changed, what’s with this bearish market lately?
Profit taking and amateur panicking
Ethereum just came off an all-time high last month at over $400. There’re gonna be lots of folks looking to exit with a nice profit. This causes the price to stall and once it stalls, even the most optimistic holders will feel like it’s time to leave.
At the same time, there’ve been many new amateur traders buying the hype. They’re part of the reason for the crazy price gains over the last few months. Many are new to crypto and are only looking for a quick profit. Once the price starts falling, these same investors will also tend to panic sell.
ICOs cashing out
As the price of Ethereum soars, there’ve also been a string of ICOs on the Ethereum platform. Many of the companies behind these ICOs have managed to raise ridiculous amounts of money (in Ethereum) through their ICOs. For example, the Cosmos ICO raised $16 million, the Status ICO raised $95 million, and the Bancor ICO raised $153 million.
Unfortunately, these startups are often not worth the money they’ve raised. Many don’t have anything close to a product except for marketing materials and a well written white paper with fancy graphics. Furthermore, there’s usually a worrying lack of experience within the leadership team. This kind of money-raising is known as “irrational exuberance”. A state where hype trumps reason and stupid money is made.
Once these startups receive their funds, the serious ones might hold some Ethereum. Those looking for a quick buck will immediately cash out. In a nosediving market, even the honest companies can’t help but liquidate their Ethereum. Startups need all the cash they can get and can’t afford waiting a few months for a price recovery. That’s assuming a recovery even happens.
Market manipulation
The cryptocurrency space is unregulated. Things that will get you in jail in the stock market is legal here and there’re going to be big players manipulating the markets for their own gain.
I was watching the latest TheChartGuys video yesterday and he claims to have seen a bot buying 40 Ethereum every 30 seconds. At a price of $200 ETHUSD, that’s almost a million dollars an hour. That’s a lot of buying pressure and yet the price continued to fall. That’s when he realized that there was another bot selling 50 Ethereum every 30 seconds. That’s a net 10 Ethereum being sold every 30 seconds and this has definitely contributed to the ongoing price crunch.
What are the conditions for a market recovery?
Amateur investors need to be burned out.
Recently ICO’d startups need to cash out.
ICO irrational exuberance needs to end.
Ethereum’s price needs to drop low enough for the “smart money” to return.