ICOs and the Current State of Cryptocurrencies

Over the past 4 months (March 11th, 2017 to July 11th, 2017) the cryptocurrency space has experienced explosive growth. Despite the recent bearish market, (which is to be expected in my opinion, but we will get to that in a bit) the total market capitalization of cryptocurrencies has grown from around $23 billion to around $79 billion, up 243%, while the total market capitalization of all cryptocurrencies excluding Bitcoin is up 1008%. This shows an increasing desire to store money in alternative cryptocurrencies or ‘altcoins’, and as we can see below, Bitcoin’s market share fell to around 40%. This has spawned an alarming number of ICOs in recent months, many of them showing little promise, but we’ll save that topic for another day.

The following chart was taken from Coinmarketcap.com

A significant difference between an IPO and an ICO is how a company raises capital. In an IPO, an investment bank ‘buys’ the shares of a company, and then lists them at a premium on a public exchange. In this case, the company receives fiat currency, which they are able to spend as they see fit. In an ICO, a company will release their token/coin to the open market to raise startup capital, but in this case, the company still has not received any truly spendable money. Their tokens/coins have been purchased with other cryptocurrencies, and therefore must be converted back into fiat to purchase good or services. This causes an outflow of capital from the cryptocurrency market, thereby diminishing the value of all cryptocurrencies, since the value of cryptocurrencies are directly tied to their market cap. This is simply a low tide.

The following chart was taken from Coinmarketcap.com.

Also, it is worth mentioning that this low tide scares away investors who did not enter the market for the right reasons. If someone does not truly understand the underlying technology they are invested in, this sort of dip/correction/“blood bath” as a few dainty bloggers have put it, will cause them to panic sell. You should never consider panic selling. The future is bright.
 
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Please leave a comment below and let me know what you think is causing the dip. Looking forward to connecting with you all.