New Report: ICOs Not Responsible for Market Crash

Perhaps the flood of ICOs cashing out their Ethereum investments wasn’t to blame for this year’s market cash.

The current 2018 cryptocurrency bear market has seen a sharp decline from the heyday of prices back in late 2017. As expected, everyone is scrambling for answers. For example, Ethereum has dropped some 80% or more since the start of this year in a stunning decline. Many have speculated that has been due to Ethereum’s overall value being inflated due to ICOs cashing out the ETH they raised. However, according to a surprising new report by Bitmex, this may not actually be the case.

As per the report, 222 of the biggest ICOs were studied to see what happened to their funds. And, as it turns out, most of them already converted their ETH into fiat funding long ago, before the crash even happened. According to the report, the total amount of ETH raised for these top projects is 15,183,779 ETH which amounts to some $5 billion in funding. The total amount transferred out or sold from this original ETH raised is 11,325,121 ETH. This means that the remaining ETH for these top 222 ICOs is about 3,858,659 ETH or $830 million or so. Therefore, based on the numbers alone, it seems obvious that most of the top ICOs have already cashed out their funds for actual fiat. Were they responsible for the 2018 ETH crash then? Most likely, not at all.

However, this is all just the tip of the iceberg. Although the top ICOs were relatively successful, we cannot really say that the entire ecosystem was not impacted by the oversaturation of ICOs on Ethereum. If we look today, majority of the coins listed on CoinMarketCap are Ethereum-based tokens. From such an overrepresentation in the market, it should be no surprise that many of them likely did not manage to secure their funds in time and maybe even lost money in the long-term.

However, at the macro level Bitmex and TokenAnalyst did prove, on average, that this theory of ICOs dumping their Ethereum thus accelerating the price crash may not be all that valid. However, the report clearly points out that much of the data is skewed by EOS which holds a disproportionate amount of ETH. Out of the 222 ICOs looked at, EOS raised almost half of all the ETH. They did so over a long period of time during their year-long ICO. Despite this, there is an argument to be made that overall many of the top ICOs did well. As the report writes:

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.”

Regardless of EOS’s year-long ICO, there were real gains for many of the top projects on Ethereum. There really should be no concern over these projects closing their doors due to this current market crash.

What the Future Holds

The Bitmex report seems to confirm that ICO treasury accounts were much less exposed during the market crash than previously believed. Frankly, it is because the ICOs in the past year made so much in funding, they were able to still stay solvent despite the massive price decline.

However, many of these ICOs were funded by lay, everyday people during much of last year due to there being no real restrictions for investment most of the time. That was then, but recent crypto-related firms have realized that professional investors might actually be better. Professional investors have warmed up to the idea of crypto-related projects and are now looking to hop into these many ventures. Take, for example, Telegram’s massive $1.7 billion ICO which was from private investors. This is no coincidence: the actual, professional investing circles have become more open to cryptocurrency projects and want to push their weight around this space more.

Although the time of wild ICOs from average people may be over, we might be amidst a new rush of funding from established parties who, until recently, were sitting on the sidelines. However, there is evidence to suggest that some of these professional investors have had their skin in the game for some time. Regardless, it seems clear that, although the old ICO-funding model is ending, a new, more professional one is currently being pushed as more viable. And that just might make the price much more stable in the long-run.