Why is the Price of Ethereum Rising? The Centralisation of Ownership...

in #etheruem4 years ago (edited)

Ethereum has been on a meteoric rise over the past 6 months. We started the year at around $8 per Ether, and in recent weeks Ether hit as high as $410.

What an earth is going on?

Well something is going on for sure. 5125% return in the space of 6 month put’s Ethereum firmly in an unsustainable bubble, and one which has seen media attention and Google searches surpass Bitcoin over the past few days. Well, I believe there is one reason and one reason alone for this appreciation in Ether price, and it’s 3 letters you’ve been hearing a lot of recently…

I.C.O

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This problem is explained very eloquently in a recent Medium Post by Whale Panda. Essentially, all roads lead to ICO.

First of all, there have been many high profile individuals across the industry speaking out about the current ICO bubble. We see well polished marketing campaigns, with little substance behind them, raise millions of dollars effortlessly. I should know, I’m one of the first people buying into these shit coins. The valuations and terms of token ownership keep getting more and more adverse, however the companies continue to raise more and more money.

So, why is this causing the price of Ethereum to rise?

This is where simple economics are the best education, and where Whale Panda really get’s this spot on.

Demand

Demand for Ethereum is being driven by 2 Factors.

  1. Speculative Traders betting on the price rising: This is everyone from the average joe on the street, to hedge funds beginning to get involved in this sector
  2. Large Investor and Hedge Funds buying Ethereum to invest in ICO’s.

These 2 factors are having a marked effect on daily traded volume of Ethereum, which has been hoovering around $1bn (24hrs) over the past week, and closing in on Bitcoin to be the most traded cryptocurrency. This is clearly having a big impact on the price of Ethereum in it’s own right, however we are also seeing an assymentry in the market, with demand clearly outstripping supply…

Supply

Ethereum has an emission rate of 5 Ether per block (Block is roughly 15 seconds in length). The problem here is that this supply is not hitting the markets, and in addition ICO’s are essential removing Ether from the market. Miners are accumulating Ether, rather than cashing in profit’s, and ICO’s are pooling together Ethereum to fund a slow burn rate in project.

We essentially have a situation of increasing demand, and decreasing supply. When a project raises fund through an ICO, they collect Ether from many participants, and use that Ether to fund the on-going expenses of bringing their project to life. The important fact here is that, an ICO is essentially a process of Centralising Ownership of Ethereum. This centralisation results in the General Ethereum User having less Ethereum, and the Larger Account Holders having more Ethereum. When the masses try to rebuy their Ethereum after investing in a ICO, there are essentially a larger amount of users chasing a smaller pool of Ethereum.

What will happen next?

We have already seen some social media action on the part of Vitalik Butterin, steeping away from all ICO advisor roles, and admitting he has made a mistake in allowing projects to ‘sell’ his involvement over the past few years.

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I view this as an admission that we have a problem, however while ICO’s get larger, more mainstream, and the returns more hyped, we will see this trend continue. We have some very large projects raising funds over the coming weeks, including Civic, Omise Go, Kin, SONM, Tezos, Status…to name a few, which are all going to do there part is fuelling demand, and centralising supply of Ethereum.

When the ICO bubble bursts, which will be triggered by returns getting exhausted, and projects getting even more greedy, this will be the nail in the coffin of Ethereum…I would expect to see a severe re-tracement in prices of at least 75%. I am also expecting this to have a marked impact on Bitcoin, which will become the safest haven of the crypto world, and benefit from it's nearest competitors demise. I am not however calling a top here, I expect to see further price rises, or consolidation over the coming weeks at least

Interested to hear you thoughts...

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We essentially have a situation of increasing demand, and decreasing supply. When a project raises fund through an ICO, they collect Ether from many participants, and use that Ether to fund the on-going expenses of bringing their project to life. The important fact here is that, an ICO is essentially a process of Centralising Ownership of Ethereum. This centralisation results in the General Ethereum User having less Ethereum, and the Larger Account Holders having more Ethereum. When the masses try to rebuy their Ethereum after investing in a ICO, there are essentially a larger amount of users chasing a smaller pool of Ethereum.

This article makes assertions but it doesn't support it with facts. Why not? Blockchain is transparent and I know you are good at gathering information. Quantify the amount of Ethereum that has been raised by ICOs, how much is held today, and what those numbers look like compared to the total supply of Ethereum. Are the ICOs collective holdings of Ethereum over 2% yet?

If hedge funds (almost none of which can legally buy Ethereum but that is besides the point) buy Ethereum to participate in an ICO and that ICO raises $50mm, how much of the Ethereum supply was locked up?

Let's do the math. A $50mm ICO at $350/ETH is 143k ETH out of a total supply of 92mm. That is 0.16% of all ETH. You think this is a material centralizing effect worth building an Ethereum is overvalued thesis around?

When the ICO bubble bursts, which will be triggered by returns getting exhausted, and projects getting even more greedy, this will be the nail in the coffin of Ethereum…I would expect to see a severe re-tracement in prices of at least 75%.

I also think you're totally wrong if you are separating Ethereum as a special case or comically, a case that is worse of than the typical digital asset in a bear market. If Ethereum re-traces 75%, it's likely that ALL of crypto is also re-tracing to a similar extent or more. There are about 10 platforms that are worthwhile out of about 100 platforms and maybe 30 digital assets that have any merit out of 1000 digital asset projects/coins. Ethereum happens to be one of them, so does Steem. But the idea that there will be safe havens that aren't fiat if Ethereum re-traces 75% is comical to me. It's almost 1/3rd of all digital asset value...

'Companies' are raising funding via ETH ICOs; per the article this creates artificial demand - that has nothing to do with the intrinsic value of ETH - as investor buy tokens to participate in the ICOs. What happens next is ugly: the 'companies' hire people, lease office space, buy equipment etc. To do so they have to sell ETH to raise funds. See where this is going?

I think the major reason of ETH rising is based on an unprecedented project:Bancor protocol. Bancor protocol use Eth for fundraise and Eth is boned to new Bancor protocol token:BNT. And on 12 June, it raise 396,720 ETH, equivalent to $153,003,311.63, within 3 hours!!So I think the major reason the rise of Eth is because of this project:) more information: https://bancor.network

I think Ether will be worth 2000$ at the end of the year 😁

If we continue to raise more and more money by the ICO method, and start to get more big companies like KIK raising funds through this method, we could be up there in 3 months ;)

I'm certain going to adopt a buffet like 'caution in the face of greed'

You've hit the nail on the head. Ethereum is simply used as an intermediary in scamming people out of millions with the false promises of shiny ICOs.

I believe that the etheruem keep rising like BTC. Nice post by the way. 100% upvoted from @chanthasam

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although some of your words i can't understand well , but still learn alot, i will follow you , thanks your post ! upvote you !

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