Week in Review: Ethereum Returns from the Abyss

The cryptocurrency Ethereum took a steep dive this week, culminating in a fresh 16-month low on Wednesday. Concerns over scalability, ICO cash-outs and future growth of the sector all fueled the declines. The selloff, which mirrored a wider slump in the cryptocurrency market, was eventually picked up by bargain hunters, triggering a 22% rebound in ether’s price over two days.

Bitcoin’s trajectory has been much more predictable relative to its peers. The leading digital currency by market capitalization has virtually broken even for the week, with the technical charts showing the potential for bigger upside in the near future.

Ethereum Crashes

It has been a rollercoaster week for Ethereum. On Wednesday, the developer’s cryptocurrency dived below $170 for the first time since May 2017 amid signs that initial coin offerings are offloading their raised funds. Ether-based tokens spent 157,700 ETH over a seven-day stretch in what was the biggest selloff since March. Presumably, startups are cashing out their ether for fiat money after a large-scale transfer to digital currency exchanges during the month of August.

Ether’s price experienced a sharp reversal on Thursday as traders swept up oversold tokens at a discount rate. The cryptocurrency would soon return above $200, eventually hitting a high of $223. The rebound helped ether pare its weekly decline to just under 6%.

ERC-20 tokens also recovered significant losses but double-digit declines weren’t uncommon. Vechain, ICON, Zilliqa and several others reported weekly declines of at least 10%.

Bitcoin Holds Steady

With altcoins and tokens in meltdown mode, bitcoin charted an entirely different path this week, as prices returned tot heir stable and predictable trading range. BTC is virtually unchanged compared with seven days ago, with prices returning to the $6,500 range. By Friday, bitcoin’s trade volume had returned above $4 billion on global exchanges, a sign that capital was flowing back into the market.

Bitcoin’s dominance rate swelled to 58.1% during the height of the Ethereum/token crash, according to CoinMarketCap. That was the highest since December. By Friday, bitcoin’s share of the overall market was roughly 56%.

Bitcoin’s technical indicators suggest that a short-term uptrend is likely. Prices have moved above the 50-period moving average and are fast approaching the longer-term average.

ICOs are Securities, Says Federal Judge

A U.S. federal judge has ruled that ICOs may be treated as securities following a criminal case involving a former cryptocurrency promoter. The decision, which was handed down Tuesday by U.S. District Judge Raymond Dearie, affirms the SEC’s position that it has authority over token offerings.

The ruling was delivered against Maksim Zaslavskiy, a fraudulent ICO promoter accused of raising money for assets that never existed. The Brooklyn-based businessman was charged with conspiracy and two counts of securities fraud related to ICOs purportedly backed by investments in diamonds and real estate.

“Per the indictment, no diamonds or real estate, or any coins, tokens, or currency of any imaginable sort, ever existed — despite promises made to investors to the contrary,” Dearie said. “Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract – a security – into a currency.”

The Week Ahead

The cryptocurrency market appears to have reached rock bottom, though it’s unwise to rule out further declines in the near future. Ethereum’s protracted selloff has raised red flags about the future of ICOs and whether the long-awaited token mass extinction event is nearing.

Bitcoin, on the other hand, is charting an entirely different path as prices appear to have formed a solid bottom near $6,000. This is an encouraging sign for the bulls and the broader mining industry.

For traditional markets, monetary policy and trade negotiations top the agenda next week. The Federal Reserve on Wednesday is expected to raise interest rates for the third time this year. Meanwhile, China and the United States will likely provide greater clarity on upcoming trade negotiations after Beijing accepted the Trump administration’s offer to resume talks.

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 Hacked.com and Contributor to CCN.com, 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

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