On Sept. 12, Ethereum (ETH) dipped below the $170 mark, dropping to $166 to hit its lowest point of the year.
Since then, within a 30-day period, ETH has shown promising recovery in its volume and momentum, rebounding from $166 to $230. Last week, on Sept. 23, the Ethereum price achieved $255.
Worst Part of the Drop is Over
The unexpectedly rapid growth of the initial coin offering (ICO) market in mid-2017 led many analysts to speculate that the price drop of ETH was largely triggered by the sell-off of Ethereum holdings by blockchain projects that have raised millions of dollars through public token sales.
Diar, a cryptocurrency research group, revealed in its weekly report that ICOs still hold more than 38 percent of the amount raised in their token sales. At the time, based on the findings of Diar, analysts speculated that if ICOs decide to liquidate their remaining ETH holdings, the price of Ethereum could decline further from its low suppot level.
“There is a big misconception that ICO companies have liquidated most of their ETH holdings. On average, all of these projects have moved or liquidated 62 percent of the amount that they initially raised. In other words, they are still holding 38 percent of the initially raised amounts. This, in turn, creates ETH selling pressures, which are unlikely to go away any time soon,” Diar chief editor Larry Cermak said.
However, on October 1, BitMEX Research, a subsidiary of major cryptocurrency exchange BitMEX, released a study entitled “Ethereum holdings in the ICO treasury accounts,” listing the holdings of ICOs and the estimated balance sheet of major blockchain projects.
The paper of BitMEX Research emphasized that most ICOs liquidated their holdings when the price of ETH was still at its high point to fund development and operations. Hence, the recent fall in the price of ETH cannot be solely attributed to the speculated sell-off of ETH by blockchain projects.
“We conclude that the ICO treasury accounts have a much lower level of exposure to the price of Ethereum than many may have thought,” the BitMEX team wrote. Quite what this means for the Ethereum price going forwards is unclear, however we believe we have shown the ‘panic sell’ thesis is either false or will only occur to a lesser extent than some expect.”
Narrative Was Wrong
From April to September, the price of ETH dropped from $780 to $200, by 74 percent. In the same period, the price of Ripple (XRP) declined from $1 to $0.25, by more than 75 percent. In mid-September, XRP initiated an impressive corrective rally and recorded a two-fold increase in its value.
ETH also initiated a corrective rally as the market demonstrated oversold conditions, but the recovery was not as strong as that of Ripple.
Even though ETH and XRP experienced virtually the same downtrend in the past five months, the decline in the price of ETH was attributed to the sell-off of ICOs while the downtrend of XRP was attributed to a normal market movement.
It is entirely possible that both ETH and XRP declined by around 75 percent simply because the market experienced a major correction and that the downtrend of ETH was not caused by the sell-off of ICOs.