Ethereum ETH has taken some huge hits in 2018. Just when traders think the bottom has arrived, it hits another low. Things have gotten so bad that the ETH price has decoupled from the Bitcoin price. These are worrying signs for the Ethereum network and a nightmare for those holding ETH. There are a few reasons Ethereum is going through a rough patch at the moment. The question is whether the things are likely to turn around any time soon.
Ethereum is Getting Hit Harder Than Most
Ethereum has lost more of its value this year than most other cryptocurrencies. Ethereum had a particularly good run up in the crypto mania at the end of 2017, rallying from around $300 to $1,300. Now it’s clear that those levels were unsustainable. But why is Ethereum struggling more than other cryptocurrencies?
1. The Old Scalability Problems
While crypto innovators like EOS, Stellar, IOTA and others are promising big things for blockchain scalability in the near future, Ethereum still seems slow to innovate. Scalability upgrades such as Sharding and Plasma are likely months off. Regardless of whether the other solutions are really a long-term fix for blockchain scalability, they are more exciting than what Ethereum has to offer right now.
2. ICOs are Dumping
Blockchain startups hold billions of dollars worth of Ethereum. Most of the money raised in the ICO boom in late 2017 early 2018 was in ETH. When people bought ETH to invest in the ICOs, they pushed the price up. While some cashed out straight away, many decided to keep their funds in Ethereum as they thought the price would keep going up.
Now the price of Ethereum is collapsing, and companies are deciding to cash out some of their reserves to protect their capital. You can’t blame them for this decision, it’s just good business. Many of these companies raised millions of dollars to fund them over the next few years. No company should have all their eggs in one basket. Especially when that basket is something as volatile as cryptocurrency.
As long as the companies with large ETH reserves keep selling, the Ethereum price will continue to struggle.
3. Fear, Uncertainty and Doubt are Higher than Ever
There’s no doubt that the market has a huge effect on the price of Ethereum and all currencies. If the media reports are good, the prices are usually going up. If they aren’t, the price tumbles. Unfortunately, the cryptocurrency market is in a historic black hole of fear, uncertainty, and doubt right now. The Ethereum price is being dragged right down with the rest of cryptos.
4. ETH Short Selling is Up
When traders think the value of an asset is going down, they can short sell that asset as a way to profit from declining prices. Basically, in a short sell, you borrow some ETH from another trader on your exchange to sell now and buy it back later. Hopefully, at a lower price. If the price does drop, you get to pocket the difference as a nice profit.
Short sellers have been taking out more and more shorts on ETH. This adds to the number of people selling right now and puts downward pressure on the price. The price drop then becomes a self-fulfilling prophecy as more short sellers push the price down further.
Will the Sell-Off End?
These factors combined are creating a perfect storm for a massive ETH sell-off. The number of people wanting to sell ETH at a time when demand is extremely low is increasing. The good news for ETH holders is that a sell-off of this scale can’t last forever. Short sellers will have to cash in their trades sooner or later, and they’ll stop making bets when things look better. As long as Ethereum can keep its fundamentals in order, it should be able to survive and bounce back in the medium to long-term.
The most important thing for the Ethereum project is to maintain its solid network and credibility. Panic on the market forces traders to make rash decisions. If Ethereum can keep a cool head through the dark times and keep working on its scalability and usability improvements, it will emerge stronger and ready to be the new infrastructure for the Internet. This means that developers need to keep developing applications, and the research team needs to keep moving towards scalability.
Apart from this, a change in the market sentiment will rebound the price of ETH very quickly. Savvy investors are aware that Ethereum is very oversold right now. Once the bulk of the onslaught is over, there will be no shortage of traders, investors, and crypto enthusiasts willing to jump in to buy ETH. This will be the force that bounces Ethereum back up to the top of its game.
Take a Deep Breath
It’s easy to get swept up in the hype of the cryptocurrency market. Just remember to keep some perspective past the daily price chart. Ethereum is still the gold standard of a decentralized infrastructure. The Ethereum project is backed with billions of dollars of investment, by some of the smartest researchers in the world, and some of the strongest corporations.
There’s a lot of vested interest in Ethereum’s future, more than any other blockchain project apart from Bitcoin. These are the projects that aren’t just going to disappear because of some gloomy news stories or because some traders have a bad feeling.
Ethereum is still a fantastic international project on a global and historical level. It’s also still in its early stages of development. Internet companies and infrastructure experience growing pains and setbacks all the time. It’s what happens when you try something nobody else has done before. The Ethereum price is struggling right now, but it’s likely it will recover and come back stronger.