Opinion – Cryptocurrency prices took a major hit this weekend, with Bitcoin falling below $6,700 (its lowest point of the year) and the crypto market cap falling below $300 billion.
Many have speculated that the price crash was due to the US Commodity Futures Trading Commission (CFTC) launching a price manipulation probe into 4 major exchanges. Others blamed it on South Korean exchange getting hacked.
This article was first published on Jun 11, 2018.
Both theories seem plausible, however there is another possibility that is seldom explored, yet perfectly rational from the perspective of the parties involved.
The cause of the recent crypto market crash could be the fault of none other than ICO companies.
These companies, upon receiving millions of dollars in ETH or BTC through their initial coin offerings, have been forced to decide whether to keep their holdings in crypto (and ride the massive volatility wave like the rest of us), or liquidate to fiat in order to have a stable source of funds to pay employees and other operating expenses.
In a year where a staggering $9 billion in ICO funding has been raised, eclipsing last years numbers by more than 2X before we even reach July, the last thing on any crypto traders mind is whether these ICO companies are worried about the price volatility of ETH or BTC.
Yet if a company only achieves their soft cap ICO target, wouldn’t the logical decision be to convert those funds to fiat currency as quickly as possible to avoid losing 5 or 10% of it due to no fault of their own?
There are a few speculators and influencers in the space who have echoed these sentiments.
Others have pointed out that as much as 3.4% of Ethereum’s circulating supply is held by ICO’s, and that Ethereum based tokens account for 91% of all tokens in the market.
Holding quantities of that size classify these ICO companies as whales, which means when they make the often rational decision to sell large amounts of ETH for something more stable in order to pay the bills, the rest of the market feels the ramifications. If this theory holds true, it’s not certain how the problem can be resolved.
However, if there’s one upside to this, it’s that some ICO companies are demonstrating their commitment to the stability and development of their projects, as opposed to engaging in price speculation that could risk their ability to cover expenses.
This may also be a sign that new ICO platforms like ICON and NEM must emerge to dilute the concentration of ERC20 token Blockchains in the market.
Until then, we shouldn’t be surprised to find more market crashes attributed to recently funded blockchain companies just trying to keep the lights on.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.