It’s been another wild week for those crazy cryptos. Ether in particular dropped by 20% between Sunday night and Monday morning. A low not seen since the coin’s surge in May. But the dip proved only temporary. Following the horror weekend, ether bounced back up 75% to US$245 again yesterday. And then today — you guessed it — it slid down again. Currently sitting at around US$203.
We’ve said it before, and we’ll say it again. Cryptos are the epitome of volatility.
But of course the question is why.
Why is it swinging so much? Surely it means the market is in chaos?
No, it’s just got a lot on its plate at the moment.
Unfortunately there is no big all-revealing answer. You’d like one, I’d like one, everyone would like one. But it just isn’t that simple. So instead, here’s a list of Ethereum’s biggest opponents, its best buds, and how they’ve impacted ether’s price recently.
Frenemy number 1- Bitcoin
A ‘frenemy’, for anyone unfamiliar, is ‘a person with whom one is friendly despite a fundamental dislike or rivalry’. In this case it’s more a case of rivalry than dislike, as bitcoin tops the list of opponents. Ethereum obviously owes a lot to bitcoin. Bitcoin is, after all, the blueprint that gave rise to the hundreds of spinoffs. And Ethereum is a spin-off, technically at least.
Recently bitcoin has dug itself into an unenviable position. Civil war. That sounds extreme, but it is certainly apt. The pioneer token’s community can’t reach a consensus on how to upgrade their transaction process. It’s led to stalling and widespread uncertainty. It’s also a large reason for bitcoin’s own price slump, which has brought the entire crypto market down with it.
A big hit for bitcoin, and a glancing blow for ether. As much as we’d like to think cryptos are far enough into their life cycle to be relatively independent, this development says otherwise. If any of the big players, namely bitcoin or ether, go down, expect the market to react poorly.
Luckily bitcoin sorted out most of these issues. The token looks to be back on track, and the market is back to some sense of stability. Hip hip, hooray.
Frenemy number 2 – ICOs
Another mixed relationship, initial coin offerings (ICOs) continue to play a big role in the price of ether. This new, unrestricted method of crowdfunding is continuing to wreak havoc on the Ethereum blockchain. Total ICO sales reached US$1.3 billion just this year. And this is only the start. Each new ICO seems to be bigger than the last. Tezos, which recently conducted its ICO, raked in over US$232 million in just under two weeks. The largest ICO to date.
The problem is that the money doesn’t stay in the system. You’re a company, you’ve just raised say $10 million. You need that money to get your company up and running. But you can’t pay for everyday items or costs in ether, you have to use standard currency. So obviously you have to transfer some of the ether you’ve received into your local currency. Which, when done in large sums, puts downward pressure on ether’s price.
It’s a tough situation to navigate. On the one hand it allows for people to fund some potentially revolutionary ideas. But it also makes ether incredibly unstable.
Even Ethereum’s co-founder Charles Hoskinson has raised concerns about ICOs. He said, ‘There’s an over-tokenization of things as companies are issuing tokens when the same tasks can be achieved with existing blockchains. People are blinded by fast and easy money.’ Which is true. Most coins being offered are utter garbage. Which is unfortunate, as there are plenty of ideas out there that are worthy of investment.
Currently there seems to be no immediate end in sight. But people will learn. And if they don’t, well, the regulators might just step in for them. That could be even worse. Decentralisation is a core part of the crypto ethos, and although they’ve had relative freedom for a while now, it might not stay that way. Reuters recently spoke to a US regulator who commented on the US Securities and Exchange Commission’s stance towards ICOs, saying, ‘I know that this is something that’s high on their radar’.
Seems fairly black and white. We’ll be sure to keep a look out for how this story unfolds.
But for now Ethereum just has to continue to ride the wave.
Enemy number 2.5 – Coindash
An addendum to the ICO dilemma. CoinDash also recently held its ICO, raising US$12 million. But US$10 million was hacked and stolen after the company’s website was compromised. While human error is to blame and not the blockchain, the result is still unnerving.
It’s a timely reminder that those people who aren’t fully prepared are at risk. There is no safety net when things go wrong, no hotline to ring when money goes missing. Stay safe when investing in this Wild West. Or better yet, bring a guide. Sam Volkering has been writing about the world of cryptocurrencies since the early days of bitcoin. You can find out more about his research here.
150 friends, all in high places
What about good news though? Is there any support left for ether?
The short answer is yes. The long answer is yes, but…
If you focus on price alone without context, then ether looks terrible. It swings wildly and no one can reason why most of the time, at least not conclusively. But you have to think big picture. Don’t get caught up in short-sighted price doldrums.
Here’s how to think big picture.
The Enterprise Ethereum Alliance (EEA) has added 29 new members to its ranks. No, it’s not a made up group, and yes, it’s a big deal. Some of the current members include: Deloitte, Microsoft and BP. What does this alliance do? They explore the Ethereum blockchains capabilities and uses for their own businesses.
Big businesses is on board? Superb, we’ve got traction. Are these new members also as noteworthy as the others? Why yes, it appears so.
Mastercard Inc [NYSE:MA], Cisco Systems Inc [NASDAQ:CSCO] and Bank of Nova Scotia [TSE:BNS] are the three heavyweights that round out the latest members. Two mammoth financial institutions, as well as a telecommunications and hardware icon.
The EEA chairman of the board, Julio Faura commented:
‘The technological breadth, depth and variety of organizations coming together under the auspices of EEA to create and drive enterprise Ethereum standards bodes well for the future development of the next-generations Ethereum ecosystem.’
You’ve got to be a little excited when massive corporations are all trying to work out how to use your fancy new technology. It’s why a lot of people are more bullish on ether than bitcoin. The system is just far more robust in terms of what it offers.
What’s truly mind boggling though is that it might not have even scratched the surface of its potential price ceiling. We’re excited, and we think you should be too. If you want to learn more about ether and a host of other cryptos, join Sam Volkering and Ryan Dinse in the Secret Crypto Network. They’ll open your eyes to possibilities that are unheard of.
Junior Analyst, Money Morning