Ethereum Price: Is the Worst Over?

Ethereum’s sudden and rapid decline in recent months has raised fundamental concerns over the future of blockchain startups. More specifically, those that rely on the ERC-20 protocol to launch their initial coin offerings (ICOs) were believed to be cashing out their ether holdings to shore up their balance sheets.

However, the latest research from Diar and BitMEX reveal that ERC-20 projects not only hold a significant amount of ether, their balance sheets was relatively unaffected by the recent price collapse. These findings suggest that the worst of Ethereum’s downtrend has passed.

ERC-20s Sitting on Unrealized Gains

Crypto derivatives platform BitMEX has released a study showcasing the impact of ether’s price collapse on ERC-20 projects. The study, which tracked the Ethereum balances of 222 ICOs, found that the projects had already offloaded as much ETH as they raised in U.S. dollar terms. Even assuming an ether price point of around $230 a token, projects that are still holding ETH have unrealized gains rather than losses.

Even when excluding EOS, which raised a disproportionate amount of ETH over its yearlong token sale, the results are the same. ICOs currently hold roughly 3.8 million ETH, which is equivalent to the amount raised in dollar terms.

The findings essentially mean that ICOs are not panicking to offload their Ethereum supplies over fear of collapsing prices. While ICOs have certainly sold a large chunk of their ETH holdings, the recent price collapse wasn’t the trigger.

Researchers at BitMEX conclude with the following:

“Despite the 85% reduction in the Ethereum price from its peak, the projects have realised gains of US$727 million due to profits from Ethereum have they already sold, often selling before the recent price crash. The 3.8m Ethereum still on the balance sheets of these projects may not have that much of an impact on the Ethereum price, as it represents a reasonably small proportion of the 102 million supply of Ethereum. At the same time, on a macro level, the projects may be feeling reasonably confident rather than needing to panic sell.”

ICO Treasuries Hold Significant Amounts of ETH

The BitMEX study confirms that ICOs are not cashing out Ethereum due to the recent price collapse. The next logical question is whether their initial sales of ETH contributed to the price collapse. While the logical answer may be yes, establishing a causal link between the two events proves difficult.

Diar, a weekly cryptocurrency publication, released data last month showing that ERC-20s still hold an average of 38% of their ETH-based funds. While this means that 62% has been moved from their coffers, we can’t assume that this amount was sold. After all, cryptocurrency projects raised ether for a reason – namely, to fund their operations. (One potential downside from this is fewer ICOs utilizing Ethereum’s smart contracts.)

That being said, companies with over-sized holdings of ETH can still impact the cryptocurrency’s future price in a negative way. The ETH burn rate of these companies can place downward pressure on the currency for several years.

ETH/USD Update

Ethereum’s price remains firmly capped below $230, as markets struggle to find momentum. At press time, the ETH/USD exchange rate was $228, give or take, representing no change from 24 hours ago.

Despite recent struggles, Ethereum has rebounded 37% from last month’s low. The $166 price-per-token witnessed last month was the lowest in over a year. The downward pressure, followed by a stalled recovery near $230, has allowed XRP to briefly overtake ETH in market cap on at least three separate occasions.

Ethereum currently retains the no. 2 spot in terms of market cap with a total value of $23.4 billion. Trading volumes over the last 24 hours reached $1.5 billion, according to CoinMarketCap.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi