The ethereum price has been falling over the last few weeks and I wholeheartedly believe this is because of the amount of ICOs that were and are still going on. There were projects that everyone wanted to be a part without any caps so hundreds of millions in Eth were raised overall. While this did create a bit of a pump because people were buying eth to get into ICOs and many eth getting removed from the market, I believe now we are seeing what happens when these ICOs actually are starting development.
Many of the companies that raised on the ICO round are not going to wait until the price goes down before they sell a large amount to fund their projects. If they raise 20 million, they want to work with 20 million and use that runway for as long as they can. For newer companies, it isn’t worth the risk to hold on and hope the price goes up in the long term. We saw the same thing in bitcoin when people were raising money for new projects as well. You also face backlash if you hold on long term and the price goes far down and you only get a little bit of development done.
Some companies did make a community promise that they were going to hold their funds for x amount of time, but I also believe this promise would be broken if the price falls far enough. The reason why I didn’t like ICOs is they pull way too much money out of the market and essentially create a ticking time bomb of coins ready to be liquidated. Companies arent going to say “hey lets just wait for a rise”, they are going to liquidate it as fast as they can. In addition if other ICOs see the other companies liquidating, they will do the same, creating a kind of race to the bottom.
All this does is hurt the Eth price over a long term period. The ICOs that were running should have capped out the amount of coins they would accept and that way you could limit the amount of money that would have to be eaten up in order to keep the price stable. Eth still has a lot of demand which is very good and should help blot the amount of coins being sold. However, in my opinion I see it getting worse before it starts getting better. All you essentially need is a 20% drop in a day and ICOs will start unloading like crazy.
This by no means is the death of Ethereum like many are saying, it just means for a while there will be a bit of a push back on price. Much of the success of Eth now also should be on how many of the companies actually produce products of value. ICOs are a big use case for Ethereum, not the only one, but an important one nonetheless. If all of the projects that raised millions fail, it might show that perhaps ICOs aren’t the most efficient way of raising money. Only time will tell and I could be wrong, but I personally think we might see a price correction in the short/medium term.
Thanks to @Elyaque for the badges