Ethereum: Why The HUGE Drop & How To Stop The Rot!

Over the last few weeks ETH's price has nosedived. Literally. In less than a month the price has gone from $400+ to below $200! Seems shocking, however, in reality, to hardcore crypto-investors it isn't as worrying or as surprising as a glance at the numbers would suggest.

It wasn't that long ago, January to be precise, that the price was around the $17 mark. The recent dip pales in comparison to the meteoric rise that early investors have seen. Many are considering it nothing but a healthy correction; some are seeing it as a response to the uncertainty created by events such as BIP148. Nothing has changed for the ground-breaking technology so which factor is causing the downward pressure on price? 

The reality? There's a whole range of other factors at play.

• The Impacts of ICOs

Crypto-aficionados have been monitoring ETH for a long time. Once the rise began, it was fairly obvious to many that it would continue for some time. As a result it became an increasingly attractive method for start-ups to raise capital. A large number of rather questionable start-ups were able to raise huge amounts of money; we're talking hundreds of millions of dollars for projects with no tangible progress.

Technological-jargon and fancy images can be a very effective way to part fools from their money! However, whether the start-up is legit or not, it's going to need to liquidate some of the raised ETH to fund its progress; developers need to be paid, resources purchased and buildings leased. When these projects start selling off their ETH it pushes the price down. Many argue here that the amount sold by these isn't comparable to the daily trade volume so it won't have a significant impact on the price.

This is sound reasoning for a logical market, however, the amount raised by ICOs proves that the crypto market isn't necessarily logical, right? The amount sold by these projects is certainly enough to push the price downward, which encourages others to sell, further pushing the price down. Which kind of leads us onto the next factor...

• Profit Taking

Usually, people are investing for one reason. To make money. Sure we all think that ETH, or blockchain technology in general, will benefit society beyond belief, but how many here would pour their wealth into it just to aid the revolution? Be honest, I know I wouldn't! Keeping this in mind, it's only natural, therefore, that people will be regularly taking profit. As people in the dotcom bubble found, until you cash out you haven't actually made any profits. When ETH reached its ATH and then drewback, numerous traders would have taken their profits off the table. Many more would cash out as the price dropped further. Once ICOs started selling off their ETH further pushing the price down the last remaining traders would have begun to save their profits, creating a race to the bottom.

The reason why this has a substantial impact on price in crypto is due to the high amount of amateur investors in the space. To invest in stocks and shares you usually need a fairly substantial bank balance beforehand; you're also going to need to find a broker, a term that scares off most investors who would be using small amounts. Crypto is a haven of possibility for people like this. Hundreds can be made from dollars, thousands made from hundreds, millions made from thousands and so on. When amateurs see the price beginning to drop panic ensues and weak hands rush to jump out of the market. This of course creates further downward pressure on the price.

• Whale Movements 

An unregulated market and amateur investors is an irresistible opportunity for someone with a lot of money. Just browse Steem and you will see the beef against the power whales have over the market, it isn't any different in other crypto market. Whales can profit just as much from pushing the price down as they can from pulling it up; resultantly, any movement by the market is likely to be compounded by whale movements.

• Stopping The Rot

To some extent, the price is unlikely to raise substantially until after Bitcoin's destiny is resolved. Uncertainty is the enemy of many investors. It brings the opportunity to make wealth beyond belief, but also to lose wealth. Once mid-August has arrived and we can look with some certainty on the immediate future of Bitcoin the rest of the crypto market will respond similarly. By that time, hopefully, many of the recent ICOs that are going to sell will have sold; additionally, the money being pumped into these needs to stop. Government regulation could limit this, but of course that's something many of us here don't want in the market.

As if that wasn't enough(!) most of the amateur money will need to leave ETH. Now I'd imagine that a vast majority has already bailed, most likely at a loss. Any left would most likely cash out as soon as they can do so profitably; consequently, any rise in price will not be a smooth one.

Ultimately, nothing has changed for Ethereum. The fundamentals are still the same as they were before and during the rise, that is clear to see. If anything, we are closer to the exciting items on the roadmap such as Casper and Metropolis. Most of the reasons for the drop in price are the outcome of a complete free market. Once the price-floor is reached, and uncertainty is reigned in, the smart money will, hopefully, begin to return to Ethereum.

Let me know what your thoughts are below! I'm currently entirely out of ETH, I saw the downward pressure ICOs would create and moved some of my profits into Litecoin, and moved some back into fiat. A man's gotta survive somehow, right? In fact, whilst writing this article I was sat in a cosy little cafe, sipping a mocha and munching on a croissant paid for entirely by ETH profits. The life of an investor ;)

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