Table of Contents
After a few days of calm, the crypto market resumed its free fall yesterday leaving many crypto coins including ETH with double-digit losses. 2018 has been tough for all cryptocurrencies however some have suffered more than the others.
ETH is an excellent example of a coin that has lost a substantial amount of its value. It has dropped 94 percent of its value since its peak in January. In this piece, we are going to look at two main reasons that have had a significant impact on the price of ETH.
ICOs Selling Off Their ETH Stash
It’s important to note that the peak Ethereum experienced last year had much to do with the many ICO projects that chose the platform to raise funds. This year has proved tough for ICOs as different regulators have taken tough stances to curb fraudulent activities that have been rampant in the industry.
The crackdown has seen less ICO projects launch on the Ethereum blockchain this year. In turn, this has kept away the investors who in the past were purchasing ETH to ensure they participate in the new projects.
As a result, this has seen the price of ETH crash harder than that of other top cryptocurrencies. So bad has the situation been for ETH such that Ripple has managed to surpass it to occupy the second position on the crypto charts with a growing difference of over $3 billion separating the two coins.
The Selloff Is Causing A Lot Of Pressure To The Market
Add the fact that many of the projects that raised funding through ETH have begun to liquidate their war chests. It’s something that has caused a lot of pressure in the market according to Biswas Das, the director of BloomWater Capital. Speaking to Bloomberg recently, he said:
“These startups are raising a lot of funds, but they don’t have treasury management or enough cash management experience, so they’re selling too early and causing a lot of pressure in the market. It was fine last year, but right now the market is so fragile that it causes a lot of pressure.”
The fact that these projects have running costs that have to be met has seen many of them start to cash in. Also, falling prices have seen some of these projects panic sell to avoid losing much value, and the result is that the ETH price has dropped to levels we haven’t seen since the middle of last year.
Investor Disillusionment With ICOs Has Led To Backlash On The Ethereum Platform
Some experts have also pointed out at investor disillusionment with ICO projects which has seen the interest levels decline. They have been riddled with scams causing a backlash on the platform that hosts the ERC-20 based tokens. The fact that there have been studies that claimed over 80 percent of these projects can be classified as scams hasn’t helped.
Spencer Bogart of Blockchain Capital LLC recently told Bloomberg;
“Investors are increasingly disillusioned with tokens and ICOs, most of which have been launched on top of Ethereum and we’re seeing this play out in the market with continued downward price pressure.”
There has also been growing concerns on the ability of the Ethereum network to handle large transaction volumes. So many new projects have opted for other platform based projects like Tron and EOS that are faster and more scalable.
ETH Perpetual Swaps
Another major factor that has been blamed for the continued fall in the price of ETH has been the introduction of the new ETH perpetual swap contract by BitMEX. It has allowed traders to short the price of ETH with up to 100x leverage just like the XBT (BTC) BitMEX contract.
Although there are no official numbers, such a contract has allowed pessimistic investors to impact the price of ETH negatively. One Twitter user who goes by the name Cryptoeazy recently pointed this out.
He tweeted that since the arrival of the perpetual contracts in August of this year, the price of ETH has fallen by over 57 percent.
ETH Weekly Chart
On the technical side of things, ETH managed to create a small doji candle over the past week which implies bearish exhaustion. The pattern has however invalidated the drop to 19-month lows.
Interestingly, ETH has found acceptance below the $102.20 level which is below the doji candle which means the sell-off from $200 has resumed.
The chart also indicates that the 5 and 10-week simple moving averages (SMAs) are heading south. Consequently, the bear indicators show that ETH may extend the decline towards the next major support level at $59.
However, there is a chance that ETH could bounce back as the 14-week relative strength index (RSI) shows oversold conditions for the first time since December 2016.