Do ICOs Temporarily Cause Ethereum’s Price to Fall?

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ICOs are the hottest new thing right now, with $320 million raised this month just by four projects: Bancor, Status, TenX and OpenANX. With many more smaller ICOs raising significant sums.

An estimated near half a billion may have been raised in June alone as the ethereum investors continue to fund new innovative projects ranging from games to decentralized exchanges and much in-between.

Most of these projects used to have a cap of around $5 million or maybe $10 million, keeping them in line with SEC’s crowdfunding guidelines, but a number of projects this month have been raising one hundred million or more.

Bancor, which aims to create a decentralized exchange without any order book through complex calculations that simply give you a buy or sell price for any token, raised $150 million on June the 12th.

That was followed by Status, an ethereum based WeChat like daap that raised nearly $100 million, with TenX, a crypto debit card, raising $67 million yesterday. In between, there have been some smaller projects, such OpenANX, which raised $16 million.

These significant sums are usually allocated towards different aspects, with developers gaining around 20-30% or more, while marketing and other functions are given much of the remaining funds.

It’s unclear whether, after the sale ends, the funds are mainly retained in eth, or whether they are diversified into fiat and other assets to ensure their value, but there appears to be a relationship between ICOs and ethereum’s price in the immediate aftermath:

Ethereum’s price seems to fall after major ICOs.

Ethereum’s price fell shortly after the Bancor, Status and TenX ICO, as can be seen in the image above. In combination, they raised more than $300 million worth of eth through a simple smart contract that does not give investors any control over the funds.

No one can say for sure why price fell during those periods with many potential reasons, but one obvious reason may be that once the funds are raised, projects sell at least a portion of their eth to pay for development and other aspects so as to drive the project forward.

As such, there appears to be a relationship between ethereum’s price and ICO sales – although the extent of this relationship remains unclear – as it seems fairly obvious to suggest mega ICOs which raise hundreds of millions may exert some downwards pressure on ethereum’s price in the short term.

 

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