Bitcoin’s roughly 70% selloff from the December peak to its
recent low has weighed heavily on so-called altcoins and especially the newer
tokens created via initial coin offerings.
Throughout 2017, the price rallies in
bitcoin and the smaller digital currency ether helped feed the appetite
for the new coin offerings, in which startups publicly sell bitcoin-like
tokens. The fundraising method exploded, with more than $6 billion raised in 2017, according to
data service Token Report.
Now, that process is
In Tuesday’s trading, when bitcoin hit
its recent low, many altcoins did as well. EOS, one of the largestinitial coin offerings, or ICOs, was down 67%
since Jan. 13, when it hit a record of $18.37. TRON, which started trading in
September, was down 92% since Jan. 22. OmiseGo was down 71% since Jan. 9. ICON
was down 75% since Jan. 30. Even an “old” ICO such as Augur, down 69% since
Jan. 12, hasn’t been spared.
Most of the larger, more established
altcoins fell sharply as well. Ether, the currency used on the Ethereum
network, was down 60% since its Jan. 13 record. Ripple was down 84% since Jan. 4. Bitcoin Cash was down 82%
since Dec. 20. Litecoin was down 71% since Dec. 19.
The sharp moves
underscore both how speculative bitcoin and its peers are and how susceptible
they are to changes in investor sentiment.
Bitcoin, which is being
used for trading more than for buying consumer goods these days, and other
cryptocurrencies have little real-world value at the moment, and most ICOs are
tied to projects that haven’t been launched.
Without any good way to
determine a cryptocurrency’s value, prices are largely driven by momentum and
buyers at the speculative extremes, wrote Gunduz Caginalp, a professor of
mathematics at the University of Pittsburgh, and Carey Caginalp, an instructor
at Carnegie Mellon University, in a recent research paper.
“Stability will be
lacking, so the cryptocurrencies may simply be a mechanism for a transfer of
wealth from the latecomers to the early entrants and nimble traders,” they
Bitcoin and ICOs also may not be as
insulated from the rest of capital markets as thought. In the past week,
cryptomarkets have mirrored the selloff in the traditional stock market.
The Dow Jones
Industrial Average started turning down last Thursday, and many
cryptocurrencies did as well. Bitcoin slid as low as $5,960 on Tuesday before
rebounding. Late Wednesday in New York, it traded at about $7,930, up 33% from
its lows but well below its record of $19,783.
In lockstep, the other
altcoins also rose on Wednesday.
“It seems pretty clear
to me that there are a lot of investors whose appetite for risk is dictated by
moves in the equity market,” said Galen Moore, who runs Token Report.
A lot of the new
investors in bitcoin and ICOs were coming from stock markets, which until this
month had been steadily rising.
What that also shows,
he said, is that bitcoin and its ilk aren’t immune to developments in the
traditional capital markets.
Crypto investors have also been
contending with regulators in China, South Korea, and the U.S. In Washington on
Tuesday, the heads of two key federal agencies testified to Congress about digital currencies and
The market watchdogs
said the patchwork of state laws wasn’t effective in regulating the
cryptomarket. Securities and Exchange Commission Chairman Jay Clayton added
that the agency “may be back with our friends from Treasury and the [Federal
Reserve] to ask for additional legislation.”
The market has already
started to slow down. Token Report’s Mr. Moore noted ICO projects raised $911
million in January, down from a record monthly figure of $1.6 billion in
The big ICOs tended to
be for technology projects that make big promises about streamlining cumbersome
processes and cutting out middlemen. EOS, which has raised more than $700
million in a coin offering that remains open, proposes to build an alternative
platform to Ethereum. Tezos, which raised $232 million last summer, is also
planning its own Ethereum alternative. Filecoin, which raised $262 million last
year, is looking to build a decentralized market for storage space.
Many of the ICOs are
for less grandiose projects, though, and those tend to raise less. Less than
half of the ICOs from 2017 raised more than $100,000, according to data from
research firm ICORating.
Click here for the original article from The Wall Street Journal.