Home > Blog

The Dearth of ICOs has Detracted from Ethereum's Value

Ethereum hit a record all-time high along with many of the large cap crypto currencies in December of 2017 and sold off throughout most of 2018. Crypto currencies in 2019 have flatlined, moving sideways as traders look for new information to drive the crypto currency markets.

How Did Ethereum Start?

Ethereum was launched as an experiment to test the value of a decentralized computing platform on the blockchain. The theory to be tested was a proposal of Vitalik Buterin. The launch was a crowd funding project which became on the largest in history. Ethereum was established with an 18 million dollar crowd funding campaign in the summer of 2014. The community support surrounding Ethereum provided the backdrop for the momentum to become a network where people continually want to develop their software.

How Do Initial Coin Offerings Complement Ethereum?

The Ethereum network provides a training ground for a developer to generate new initial coin offerings (ICO). As new software products are developed on Ethereum, and new coins are developed on the platform, investors use Ethereum to participate in the initial coin offerings. Instead of buying the ICO, traders are purchasing Ethereum. BAT, one of the earliest ICO success stories, drew in $35M worth of ether in 30 seconds.

When its Too Good to Be True

Once of the issues that surrounded new ICO’s was the growing scrutiny it received from regulatory bodies. Many new ICO’s did not hold weight, and as cryptocurrency trading prices soared in late 2017, regulators started clamping down. This brought up the underlying anxiety of how regulation would impact this use case of Ethereum. ICOs continued to happen, but the rally in the price of Ethereum was eliminated.

Ethereum was the platform of choice for ICOs, and the network’s smart contracts, in conjunction with a standard for smart contracts, made it easy for anyone to create a new token. This empowered new companies to collect money from investors in a way that afforded more security to investors than traditional, paper-issued shares in a company.

Unfortunately, the low barrier to entry for new coins also made it very easy for coin scammers to abuse the system and collect money from investors without having a coin. The fraudulent activity allowed scammers to make off with huge sums of money while delivering no good or service in return. Complain brought on a crackdown from the Securities and Exchange Commission which generated additional headwinds for Ethereum.

Smart Contracts Equal ICO

The way Ethereum Blockchain was created makes fundraising very efficient as all you have to do is create a smart contract to do an ICO. Every time ETH are sent to the contract address, the contract issues newly minted tokens that are automatically sent back to the sender. This is basically the same function as an investment banker, which could make IPOs obsolete in the future. In early 2018, ICO raised more than 1-billion dollars in both January and February, while prices of Ethereum remained high. The decline in the value of Ethereum has altered the landscape.

Additionally, South Korea and China which were big players in the mining and trading of a wide range of cryptocurrencies started aggressively shutting down and regulating cryptocurrency exchanges, preventing people from doing things like trading ETH or participating in ICOs. Since the great selloff of 2018, prices have traded sideways waiting for new information to drive the price.