The biggest technological breakthrough since the invention of bitcoin, the world computer which some think will change many industries, has effectively seen no gain whatever in price for an entire year.
On June the 8th 2017, ethereum stood at $420. On June the 27th 2018, ethereum stands at $430. In between, the currency has gone up and down, but price has effectively been stagnant for an entire year.
Ethereum is somewhat unique in that regard from any of the major cryptos. BCH, of course, did not even exist precisely a year ago. XRP was far lower in June 2017 at around $0.17, now it’s at $0.45. Bitcoin was at around $2,500 then, now at $6,000.
So what happened with eth, why has the world computer, which ushered in smart contracts, seen no gain whatever in an entire year?
Part of the reason might be that during spring last year ethereum rose from $20 to $420. Its bull run, therefore, was had last year and since then it hasn’t really been bullish.
Even during its rise to $1,420, it was more bitcoin sort of dragging it up with great effort, and now bitcoin is dragging it down.
But why didn’t ethereum take the lead when bitcoin gave the show as was the case in the duo concerto from 2016 to the beginning of 2018?
ICOs are part of the answer. They raised billions, mainly in eth, and then sold all that world computer currency for fiat.
Before SEC even knew what ICOs are, the ethereum community was up in arms during summer 2017, blaming mega ICOs for crashing the price.
For some time now they’ve focused all that reee towards EOS as the poster boy of greedy mega ICOs that harm the hand that fed them.
We, of course, measure the pulse and give it a microphone. So in July 2017 we shouted: “Mega ICOs Are Cashing Out and Crashing Ethereum.” While just last month we said: “EOS Crashing Ethereum, 300,000 Eth Sold.”
All of it well documented, of course, so it isn’t hysteria but a simple matter of supply and demand. As much such supply was concentrated in few hands, supply effectively increased because they put it all on the market.
Ironically, thus, the year long price stagnation might even be bullish because price has maintained a reasonable level despite significant new supply.
Eventually that new supply will stop flowing, at least from mega ICOs, with EOS now having just 100,000 eth left.
For those who have been around for some time, the above might have echoes of 2014 when bitcoiners started turning against merchants.
Their reasoning was somewhat similar to ethereans with ICOs. All these merchants don’t want bitcoin, they used to say, they want fiat. They instantly sell our coins, crashing our prices, reeee.
BitPay back then revealed some of them do actually keep their coins and of course some ICOs do also keep their coins.
Yet, mega ICOs were probably a mistake. That’s a general statement and necessarily it has exceptions, or can have exceptions, but there was widespread consensus ICOs should be capped to $20 million, a rule gained by the wisdom experience provides which the mega ICOs willfully ignored.
Now, a year on, that cap will be enforced by the law. It happens to be slightly lower, with accredited investors exemptions under crowdfunding rules having a cap of around $10 million under EU law.
Under US law, the cap of $1 million for the exemption is completely ridiculous and probably easily ignorable as they can just incorporate in EU.
But at $10 million it can work, although $20 million would be preferred, with the further limitations under crowdfunding rules of say $2,000 per individual being a good rule of thumb this space itself discovered last year.
That’s because of course you don’t want bots to scoop up all the tokens in seconds, so you limit it to have as wide an ownership distribution as possible, and thus as decentralized a project as possible.
The cap itself is pretty reasonable as no whitepaper needs more than $20 million. Ethereum itself raised no more, and if such sum is sufficient for such breakthrough then it is reasonable.
Plus, of course, projects can keep some of the tokens for themselves, so if the market does value them, then realistically they’d be raising a lot more. But that’s quite different from people straight out handing money.
Obviously, in DAO like settings people don’t have to hand over any money save for in trenches, but smart contracts might not yet be sufficiently mature for a re-run of that experiment.
Now if there are many good projects that want to tokenize and raise say $10 million, any price pressure would be considerably outweighed by the added value as probably 95% of the projects might amount to nothing, but that 5% might be used even by your grandma once sharding goes out.
So after a year long of experimentation it appears a good balance has been reached of promoting innovation and capital formation while not crashing eth.
Another part of supply and demand is of course miners, but hopefully ethereum will get rid of them soon enough and replace them with savers or stakers as they call them.
Which suggests all of this is temporary, with a tint of history echoing, but we’ll have to wait and see now as the second half of the year begins.