What Can Cause Ethereum Price Falls off the Charts?
Ethereum price rose above $400 on 12 June 2017 before it went down close to $200 later on 26 June 2017. The volatility of Ether has grown significantly and it may not be the right time to buy Ether right now. What can possibly cause Ether price falls off the chart? Can a hack like Bithumb crashes Ether within a minute?
What Can Cause Ethereum Price Falls off the Charts?
On 21 June 2017, someone sold $30 million worth of Ether and sent the price down to $0.10. The flash crash has caused many investors lost a few thousands of dollar within a second as the drip triggered a series of stop loss orders.
Can this happen again in the near future?
In my opinion, there are two reasons that can possibly cause a downfall of Ether price, a repeat of Mt. Gox‘s incident and the influx of Initial Coin Offerings (ICO).
#1 Major Exchange Outage
If you are long enough in the world of cryptocurrency, you might have heard about the incident of Mt.Gox hack. They were handling more than 70% of all the Bitcoin transactions worldwide. In February 2014, Mt. Gox suspended trading, closed its website and exchange service. Worst of all, they filed for bankruptcy protection from creditors. They allegedly lost $350 million in Bitcoin (7444,400 BTC).
There were several outages happened to Coinbase and GDAX that triggered a wave of panic selling that brought Ether price down.
Almost every market crash is a result of panic selling due to the lacking of proper evaluation of the fundamental of a market condition.
In the stock market, most securities exchanges have instituted safeguards against panic selling, limiting automatic trades which may increase panic selling once it starts and even suspending market trading altogether when declines reach a certain point.
Unlike the stock market, cryptocurrency is unregulated. If any big sudden sell-off like what happened on 21 June 2017, there would be investigations underway.
Buying and selling cryptocurrencies is all the time a dangerous enterprise. Cash could be earned and misplaced in a matter of mere seconds. An unexpected suspension of trading or outage of an exchange can send price crashing.
Although the standards in cryptocurrency exchanges have considerably increased since the devastating bankruptcy of MT Gox which lost almost one billion dollars as valued at the time, there is still a possibility that the exchange is hacked like Bithumb. The hacking has caused monetary losses from compromised accounts have started to surface, and are quickly reaching into the billions of won.
#2 Initial Coin Offerings
Token sales, often called Initial Coin Offerings (ICO), are exploding in popularity. Seemingly each week a new record is hit with huge sums being raised by innovative projects in almost no time.
For those who are not familiar with ICO, it is an unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.
Just like Ethereum, it raised $18 million with an ICO in 2014. Just like many other ICOs that are running presently, Ethereum’s team wanted capital in Bitcoin and hence, offered 2,000 ETH per BTC. BTC was priced at $650 and that constituted to $0.40 per Ether. If you are one of the early investors, buying one Bitcoin worth of Ether would make you a millionaire in due time.
Ethereum’s market capitalization has increased from 5% to 31% in just 4 months, at the same time Bitcoin’s market cap fell from 89% to 37%.
Ethereum is way more than just a cryptocurrency as it is also a platform which offers decentralized services based on the blockchain. Its underlying currency is Ether. It’s also a project which helps start-up launch there decentralized services, raise funds through ICO.
ICO, no doubt, is a proven and efficient way of kickstarting crypto projects, provided the product is in demand and a reliable team is working behind the scene. At the time of writing, there are more than 20 offerings being carried out a month. You can check the ICOs and Crowdsales on Smith + Crown website. According to Smith + Crown, there have already been more than $150 million raised this year through ICO.
Yes, you guess it right. We are reaching a stage where digital currency investing is becoming a norm. ICOs have been criticized for selling out quickly to large holders of cryptocurrencies. Tokens issued today are built atop Ethereum. An Ethereum-based token is to Ether as a concert ticket is to a US dollar.
If you pay enough attention, there is a slight correlation between the ups and downs of the Eth price and the crowdfunding closing dates.
Although this may not be entirely right, there is still a big risk where the Ether raised by these ICO will be retained or dump on exchanges for fiat.
One prime example is Bancor Foundation that raised more than $150 million worth of Ether by offering their own token. Once the tokens were sold out, ETH was priced at $410, and drop to $310 a few hours later. Coincidently, Coinbase has crashed along with GDAX exchange and users are unable to sell or buy.
Could this really a coincidence?