What goes up must come down. Ether, the cryptocurrency that’s part of the ethereum protocol, has fallen by 30% in the last seven days. It has fallen 17% in the last day of trading, from $240 to $200.
Of course, ether is still massively up for the year. It was trading at $10.71 last July, and $200 today. That represents a 20-fold gain over the last 12 months.
Why is ether down? It’s helpful to understand how its price rocketed in the first place. Its gains had a lot to do with demand to take part in initial coin offerings (ICOs), which have gripped the cryptocurrency markets with promises of quick riches. (ICOs are seen as a disruptive new mechanism that could displace traditional venture capitalists from the fundraising process and remake the internet’s business model with decentralized applications and cryptocurrencies.) The popular ICOs were denominated in ether, meaning investors had to first buy ether to take part.
These offerings have now raised hundreds of millions in funding: $327 million in the first half of the year and several hundred million more in the interim from monster offerings. All that ether has to be liquidated to fund the ICO projects—ideas ranging from ad-free web browsing to prediction markets. Tens of millions worth of ether being sold for bitcoin or fiat currencies is what explains the price movement, says Andrew Masanto, a high-net worth investor in ether and ICOs. “All this equals long-term, downward pressure on the market,” he says.
So ICOs inflated the price of ether, and now they’re responsible for driving it down.