The crash of Ethereum on September 5. Where does the trail lead to?

Electus Info
Sep 7, 2018 · 5 min read

The beginning of autumn was catastrophic for the second largest cryptocurrency. The ether was clearly not ready to support the attempts of BTC growth and continued its flat movement, and after bitcoin began to fall, a real panic started with ETH, which reached its peak on September 5. In a few days the coin have lost almost a third of its market value. The analysis of transactions shows that the sale of ETH by ICO startups could play a major role in this crash.

Of course, a definite role in the collapse of ETH in 2018 is played by a purely technical factor — the more something grows, the more it falls. Remember that since the beginning of 2017 to the early 2018 ETH has grown hundreds of times from $8 to $1,400.

But the scale of the crash does not correspond to the usual correction, since all key support levels are broken and ETH still looks weaker than the market. There must be strong fundamental factors for such a decline.

It is likely that the long-term pressure on the price is explained by the reorientation of the ICOs from raising funds in ETH to raising it in USD. When the price of ether was growing, it was very profitable for start-ups to raise money in ETH and to earn additional exchange rate differences, while ICO participants created huge organic demand for the coin. Also a significant role is played by the increasing participation of venture investors, who prefer to invest with fiat in order to reduce exchange rate risks. This is shown by Coindesk statistics.

There is also a reversed situation in terms of start-ups’ desire to keep the ETH.

So, in May the EOS project was actively reducing its ETH holdings and according to the Santimentscanner it got rid of about 1.3 million ETH for a total value of about $1 billion. The bulk of the funds was forwarded to the open market.

In the same period, ETH fell from the highs of $830 at the beginning of the month to $500 at the end of the month.

So what happened on September 5? Why did a decline turn to a total crash? The statistics of the Ethereum blockchain scanner shows active movement of ETH from the wallets of the ICO start-ups. For example, the analysis of transactions showed that more than 50 thousand ETH were transferred from the wallet of ICO-startup DigixDAO to the Gemini exchange.

The most interesting thing is that it happened on September 5th. That is exactly the day when there was a huge decline of ETH price from $287 to $228. Is it a coincidence?

Data from the Santiment scanner confirm that in the August-September the outflow of funds from the ICO wallets is not only at a high level, but it is also accelerating. From the beginning of July to the beginning of August there was an outflow of about 110 thousand ETH, but in the last 30 days this figure has increased to more than 220 thousand ETH.

This number is still not huge, but considering the general weakness of the market, a lot of participants are probably rushing with sales of own ETH or short-selling with margin. The statistics confirm that the amount of short positions of ETH/USD on Bitfinex is at a record high level.

The price of ETH was caught in the “ideal storm”, when internal factors are superimposed on the general weakness of the cryptocurrency market. The holdings of ETH with ICO start-ups have not dried up and this fact is a major risk, because the wallets of start-ups may contain hundreds of millions dollar of the cryptocurrency. If the market continues to fluctuate close to current levels or goes below, bad times for ETH may continue. ICOs have no intent to become “hodlers”.

From the investment point of view, the situation remains complicated. In spite of difficulties, the ether is still one of the most fundamentally strong coins:

1. ETH is the main platform for the development of decentralized applications (dApps). This market is growing steadily. In 2019, a quarter of the world’s largest companies announced their readiness to invest from $5 to $10 million in blockchain solutions for their business;

2. Despite the crash, the main indicators of Ethereum network activity remain stable. This means that the practical use of the ether does not decline;

3. By the end of the year, a number of major platform updates are expected to be released, which should solve the problem of network scalability and speed;

4. ETH is the second most accepted coin in the official financial industry. In the case of the cryptocurrency ETF launch, the demand for the ether can grow significantly. Bitcoin is increasingly perceived by the financial world as “digital gold” and the main alternative means of saving, and ether is the best candidate for the role of “digital silver”.

In technical terms, the key support levels are located in the area of $180–200. However, one should not hurry with purchases until the situation stabilizes. A trigger for the beginning of a growth might be a short- squeeze — a long green candle, which is accompanied by a decline in the amount of short positions in ETH.

Cryptocurrencies analyst Andrew Mastykin for https://t.me/electus_en

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