There has been a drop in value across the entire spectrum of cryptocurrencies, but the drop of Ethereum is one that feels much stronger compared with the others. Despite being the number two in market cap, Ethereum has seen drop of 87.5 percent since it hit its all time high of $1389 on January 15th. Ethereum is now back at the level it was in July-August 2017, and its downfall doesn’t seem to end any time soon. Why is this happening?
Ethereum launched as an ICO. Early investors got 10 or even 100 times their initial investment back, which is huge! The network was also being used by a lot of other crypto companies to launch their own tokens. All these blockchain projects raised millions in ETH during their ICO, but there’s a point when they need to cash out and invest in development, new employees, their own technology and so on.
The fall of crypto market started in the second half of January. Many companies that setup an ICO, saw their budget decreasing because ETH became less valuable. As a result these ERC20 projects needed to sell their ETH holdings, or they would lose millions. This causes ETH to experience a downtrend that’s double as severe as the fall of other tokens.
ICOs calculated the fund needed for their project based on the value of ETH. Of course they can hold on to the ETH in the hopes it increases in value, but in the end they already received the money they would need. Investors raised money for the project, in order to see the project being build. Using the acquired ETH for trading would not be the right thing to do. Cashing out the acquired ETH would’ve been the best thing to do… that way the price of ETH would not have gone up as much as it did, but it would also not have dropped as much as it is doing right now.