The recent downturn of Ethereum (ETH)
Ethereum has recently hit a new 2018 low and a number of factors seem to have driven this price trend.
The severity of the price slump can potentially largely be a result of ICO project owners liquidating their positions by cashing out Ethereum into fiat currencies or bitcoin. This can partly explain the recent volatility of Ethereum (blue) over Bitcoin (red) as shown below:
Project quality and investor confidence
This highlights the number of ‘immature’ projects pursuing ICOs in the market and a declining investor confidence for these projects:
- 57% of ICO projects begin fundraising with nothing more than an idea in Q2 2018 (versus 47% in Q1 2018). This implies more projects with limited resources committed, resulting in lower costs of exiting.
- 50% of ICO projects raised less than USD10 million in Q2 2018 (versus 28% in Q1 2018)
- Median Return on Investment declined to -55.38% in Q2 2018 (versus +49.32% in Q1 2018
Ethereum’s Statement
This cashing out trend supports Vitalik Buterin’s (creator of Ethereum) statement on low actual sustainable usage of blockchain. The current primary use case for Ethereum is for ICOs as 95% of ICO tokens are currently built on the Ethereum platform.
Despite the recent price slump, the outlook on Ethereum remains relatively optimisitic among the Ethereum developer community.
- Vitalik recently published a guide to 99% fault tolerant consensus and his long term vision to move away from the proof-of-work consensus mechanism.
- Developer activity on Ethereum is rising by “two orders of magnitude” since 2017 and price volatility is largely driven by speculation, as expressed by Joseph Lubin, co-founder of Ethereum.
- The development process of Casper FFG was highlighted to be under academic review before finalisation (and also highlighted under Vitalik’s tweet storm).
Conclusion
The timing of the recent statements has injected some positive outlook to the Ethereum community but it can also be seen as significant pressure the community is facing with significant price pressures in the market.
(Article Source: : Bloomberg, Coindesk, Coinmarketcap, Cryptocompare, Cryptoslate, ICOratings.com, Jinse, Standard Kepler, Trading View, Vitalik.ca)
