Ether’s (ETH) price has dropped nearly 80% this year, from nearly $1,400 to $204 at press time. This after it outperformed bitcoin (BTC) in percentual growth last year when it went from little under $10 to well over $1,000.
Last year, the digital currency industry saw the launch of numerous initial coin offerings (ICOs), which used the Ethereum blockchain to develop their platforms. Commenting on this viral trend, Kyle Chapman, a market analyst at venture capital firm Cosimo Ventures, said:
When people saw the trends in ICOs as they kept going up, it's easy to understand why people think this could be a long-term store of value.
Not Meeting Expecations
Chapman further explained: “that was the appeal for it, and that’s why you saw the extreme growth last year.” Data analytics firm Autonomous Next has estimated ICOs raised over $7 billion last year, with most of them promising their investors some type of future service or product in the form of “utility tokens.”
Despite the promises and tall claims made by blockchain startups , many of them turned out to be fraudulent schemes or simply just bad business ideas. There are, however, some crypto projects that have achieved moderate success, but their rate of adoption is not nearly as high as what may have been expected.
Reflecting on ether’s declining price, and the overall drop in cryptocurrency prices, Multicoin Capital hedge fund manager Kyle Samani noted:
“People started building apps and software, but the market got ahead of itself. They are realizing you have to be in it for the long haul, and some investors don't have the patience.”
“Thinly Traded”, “Desperate For Legitmacy”
As CryptoGlobe reported, analysts and researchers have observed that short-term traders have been dominating the cryptocurrency market. Moreover, many reports indicate digital currencies remain “thinly traded” because of the lack of institutional support.
Experienced Wall Street analyst Larry Shover recently said cryptocurrencies are “desperate for legitimacy.” Shover mentioned the same reasons for lack of investor confidence in cryptos as most other market analysts. They include lack of proper regulatory oversight and the growing number of fraudulent schemes associated with cryptocurrencies.
As Ethereum struggles with the declining price of its native token and major scalability issues, a number of other competing platforms have now entered the market. Kowala stablecoin CEO Eiland Glover commented on the emergence of competing smart contract and DApp platforms by noting:
“Ethereum is facing a massive crisis in investor confidence over its inability to rapidly scale in the face of competition.”
“The murkiness of Ethereum's path forward and the lack of DApp mainstream adoption are both hurting ER20 token prices and the market as a whole.”
Crypto platforms currently competing with Ethereum include Dan Larimer’s heavily funded EOS project, NEO, Qtum, Tezos, and Cardano (ADA). eToro market analyst Matthew Newton noted that Ether’s price decline can also be attributed to “the FUD [fear, uncertainty, doubt] being spread around about the death of ether, which may [be] contributing to an emotional sell off.”
Newton also said many ICOs that were holding ETH “have watched a fortune dwindle in the last year.” This, according to the eToro researcher, has forced many blockchain startups to liquidate a significant portion of their Ether holdings and various other investments in poorly performing digital tokens.
Meanwhile, Ambrosus blockchain network co-founder Angel Versetti said the Ethereum platform has still been working more effectively compared to the newer blockchains that also offer support for developing smart contracts and DApps.
Too Much “Speculation”
“There are more stakeholders (of large holdings of digital tokens) with concentrated power among other altcoins, who are promoting a narrative that Ethereum's competitors are better and stronger. It's important to bear in mind, however, that these predictions are not based on fact, and are merely speculative in nature.”
Short-sellers have also caused ether’s price to drop this year as crypto derivatives trading platform BitMEX launched a new swap product that lets traders place bets against ETH. Goldman Sachs analyst Timothy Tam noted:
“The reality is it is a lot easier to short ether now, and that contributes to the downward movement. Ether has underperformed, but its use case hasn't changed.”
Tam added that the market manipulation regulators have found with bitcoin (BTC) is also present in ether’s trading. He said: “We do spot abnormal price movements, and it does seem odd.”