Today I want to talk about the prices of cryptocurrency and most likely the reasons behind it. Because what we’re seeing are constant buy and sell, or constant drop offs, each week and a lot of us are wondering why. I tend to think that it’s our own fault, or investors fault. The reasons I say that is because a lot of investors are looking to get into initial coin offerings to make a quick flip or speculate and get in and out as fast as possible.
In healthy markets, that’s fine, but when the entire market is made up of, or the majority market is made up of these investors, it throws the system out of balance, and this leads to high cap ICO’s which also leads to lower overall prices for the cryptocurrencies involved in this ICO’s.
As being a part of several startups, typically the amount raised is foresee is upwards of $500,000 as a top, and if you’re Series A, it goes up to $12m – $15m. And in order to get that, there’s a high degree of due diligence done on the investors side. The reason why they limit the funds to $12m – $15m, which is still a lot by some standards, most startups during Series A, will maybe get $4m – $5m to prove out the concept. After they’ve built the concept, then it’s about trying to get traction.
Now we’re in a paradigm where the seed round, or the initial fundraising round is upwards of +$100m, especially when we consider there’s no product and the team is less than 50 to 100 people. For those that say it can’t be done without this kind of money, I tend to look back at Steve Jobs and Steve Wozniak, Bill Gates, Paul Allen. It can be done, bootstrapped.
We’re getting a little bit off topic, so I’ll come back to it. Now, when a buyer or an investor is looking to participate in an ICO, they go to an exchange like Coin Jolt and exchange their fiat for BTC or ETH where they incur zero fees. Then they use that to fund the ICO, or the company that’s running the ICO.
In order to limit the risk, right off the bat, some of them are going to sell some of that cryptocurrency back to the exchange and straight back into fiat currency. Here’s the thing, you as an investor paid $350,000 into Ethereum to participate in an ICO, and we saw these run ups right before these mega ICOs anyway and some people invested $2800 per Bitcoin and what ends up happening when the company gets those funds, they start dumping it. And it immediately floods the supply with more Ethereum and Bitcoin, which lowers the price.
So if you’re holding onto Ethereum, then it’s really bad for you. But if you exchange your Ethereum for tokens, and you’re waiting for those tokens to flip back into the market, for more Ethereum, by the time the ICO or the company has sold Ethereum, your price per ETH is now down.
It also becomes worse when there’s continually releasing coins at a very aggressive rate. These ICOs that have $100m can literally run for 10 – 20 years without any problems.
Let’s take a look at EOS as an example, and I pointed this out because I’ve seen it and one of the great things about blockchain is that you can see from the address you send Ether too, what they’re doing with the Ether. And apparently, out of the 309,000 ETH that was raised during the ICO, 100,000 of it made it to Bitfinex, the exchange, where it was then subsequently liquidated.
The whole point of an ICO is to raise funds to fund the business, which makes sense, and this is exactly what they’re doing but the way they’re doing it is hurting the overall market because they’re so aggressive with their fund sales and their fundraising. What would happen, what would be nice to happen is if they could limit their cash to what they need.