People start asking: “Who is killing crypto? Banks or governments?” In fact, the explanation of why it grew so quickly and then similarly quickly fell could be very simple.
When startups discovered ICO, the easiest means of investment was ether — you don’t have to create your own blockchain, neither make a fuss about issuing coins — everything is done by the smart contract. On the back of the global euphoria about the future of decentralization, the valuations of projects with just one whitepaper on hands were indecently high. All this required massive ether allocations. Several companies in the market that were investing in/helping ICO were making implicit agreements that the ether they’ve invested in will not be sold immediately after the ICO or even in several months after it (ooo… and they had a looooot of ether!). In return, they promised not to sell the startup tokens right after they’ve entered the exchange. The public engagement of these funds in the ranks of investors GUARANTEED the fundraising for any whitepaper, for what they were granted with large discounts. This all turned into a looping process:
- Supply of the freely traded ether in the market is decreased (worth of the amount invested in a particular ICO)
- As a result, ether’s price grows
- These foundations now have more money in the dollar value (maybe even more than before the investment)
- They look for another ICO that would agree on such terms
It is basically the same as during 2008 real estate bubble — in order to sell more CDOs you had to give out more loans.
Thus, after dozens of major ICOs, the number of free ether in the market has greatly decreased. The continuous price increase never gave reasons to doubt that not selling for $ is foolish. Later, the outside investors have joined the rally. The cherry on top of the pie was the opportunity to invest tokens just collected from one ICO into another ICO (in other words, invest one junk papers in the others), using THE DOLLAR ASSESSMENT of these tokens on the day of investments. That is how we saw whitepaper projects that were valued billions.
It all ended up when ICO industry became too crowded. It became clear that in order to succeed you have to jump in ahead of others, and correspondingly — jump out first. Those who sell later will get less. In addition, over the year it became clear that the number of customers and incomes of the newly-made ICOs is close to 0.
After a few days they dropped another 20–30%
I’m sure that 99% of ICOs will collapse quickly due to the run out of money and product delivery failure (this has nothing to do with the crypto at all), while the most part of the remaining 1% will transfer money to another basket and get rid of the token.