With the ethereum price sitting more than 80 percent below its all-time high in mid-September, the conventional wisdom said that startups who had raised funds through initial coin offerings (ICOs) were likely driving the sell-off. ICOs, after all, had been conducted almost entirely using ETH, leaving hundreds of startups sitting on a steadily-depreciating asset. The convention wisdom, it turns out, was wrong, at least according to a new report from BitMEX Research.
Ethereum Price Decline Not Weighing Heavy on Blockchain Startups
That report, published Oct. 1, examined the time-lapsed ethereum balances of 222 projects that collectively raised $5.5 billion, as measured by the ETH/USD exchange rate at the conclusion of their respective ICOs. BitMEX Research tracked ICO selling over time to determine how the ethereum price decline had affected the bottom line of ETH-heavy balance sheets among token developers.
ETH/USD | Bitfinex
The researchers found that ICO-funded projects have, on average and in USD terms, cashed out almost as much capital as they raised at the time of the sale.
Excluding EOS — which raised $3.8 billion in ETH and steadily exchanged those funds throughout its year-long ICO — the projects surveyed in the report raised just under $1.64 billion. To date, they have sold an estimated $1.56 billion in ether, realizing a net profit of $727 million over the value of ETH at the conclusion of the token sales.
Source: BitMEX Research
Even after this year’s prolonged ethereum price decline, ICO-funded startups are still, in aggregate, sitting on $830 million worth of ETH, including $93 million in unrealized net gains.
Source: BitMEX Research
Researchers: ICOs Likely Don’t Feel Need to Panic Sell
CCN previously reported that research firm Diar had debunked the thesis that ICO-driven selling had fueled an early-September ethereum price decline. At the time, ICOs continued to hold an average of 38 percent of the initially-raised ETH in their treasury addresses, while the other 62 percent had either been sold or moved to separate wallets.
Diar’s research had left open the possibility that startups might be holding enough ether to present an existential threat to the cryptocurrency’s market value, as a further ethereum price decline could trigger more selling.
It’s possible that’s true for startups who held their token sales when the ethereum price was trading near its all-time high of $1,432. Indeed, these projects have gross unrealized losses totaling $311 million, though, to date, they have realized just $34 million in losses by selling ETH for less than it was worth at the end of their ICOs.
However, the BitMEX Research report also paints a picture in which startups as a group are financially-secure enough to weather a prolonged bear market.
“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 its represents a reasonably small proportion of the 102 million supply of Ethereum.”
The report concluded by speculating that, “on a macro level, the projects may be feeling reasonably confident rather than needing to panic sell.”