Ethereum-based ICO. How crowdsales influence cryptocurrency?

Ethereum-based ICO.  How crowdsales influence cryptocurrency?

Currently, the crypto community is observing the ICO boom. The majority of startups hold ICOs based on Ethereum rather than Bitcoin, as the potential split of the latter can reduce the possible incomes.

What impact can such a big hype have on Ethereum? Let’s try to find out.

What are the reasons of the price increase?

Since the beginning of the year, ETH price has increased by approximately 4000% because of the general hype around cryptocurrencies. There are still many people ready to invest in ETH even with its high cost. It is caused by the fear to miss “the next Bitcoin”. However, the dynamics looks very unsettling, as such a drastic growth most often signalizes the bubble that may burst.

Ethereum-based ICOs add fuel to the fire. Startups enter Ethereum blockchain, generate their own tokens and then sell them via ICOs for Ethereum. It causes even more demand for cryptocurrency, which just increases the general hysteria.

Why can the bubble burst?

Startups with very raw products often enter the ICO market. Moreover, more frequently companies do not have a product at all. These companies receive dozens of millions of dollars practically for no reason. They do not have a team, hardware documentation, or a clear business plan. Therefore, not surprisingly that many startups fail. By the way, Ethereum’s ICO raised just $18 million.

Ethereum-based ICO launched by Bancor company can serve as a simple example. It holds the second position in terms of funds raised via ICO. It managed to earn $153 million in almost three hours. Even the founders did not expect such results. They had to emit 50% of tokens additionally, which caused malfunctions in Ethereum blockchain.

Soon after the ICO, investors started to examine the Bancor’s concept. It turned out to be beneath criticism. It shows that usually investors do not know in what they are investing money. As a result, a logic token sale takes place, which leads to the drop in Ethereum price.

Top 5 Ethereum-based ICOs that raised the biggest amounts of money:

  • Tezos: $232 319 985.
  • Bancor: $153 000 000.
  • Status: $90 000 000.
  • TenX: $64 000 000.
  • MobileGO: $53 069 235.

System instability

What happens with the price of digital currency, when huge amounts of Ether are sold? An incident at GDAX crypto exchange can be mentioned as an example. On June 21, a large sum of Ether was sold there (tens of millions of dollars). It led to the drop in the ETH price from $317 to $224, in other terms – by almost 30%. In its turn, it led to the closure of a number of deals with losses and liquidation of marginal positions for hundreds of traders. As a result, 1 ETH costed $0.10 for some time.

And what if the ICO bubble bursts and a huge number of investors rush to sell tokens based on Ethereum?

Conclusion

Too many things signalize the expanding bubble. It cannot be good neither for Ethereum nor for Bitcoin. Therefore, investments in cryptocurrencies should be carefully thought through. As the saying goes, measure thrice and cut once.

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