Ether Price Plummets – What Happened?

3 minute read

Posted by: pesa_mic

August 18, 2015

Over the August 8 weekend, Ether (ETH), the native token of decentralized platform Ethereum began trading on exchanges after the launch of its first live release, ‘Ethereum frontier’. The release came out with set conditions, measures put in place by devs. As soon as trading went live on some exchanges, led by kraken over miscommunication, ‘ether dumping’ set off a panic price fall, down 80% from prices at $3.0 just days ago.

“The market cap was around 170, now 88 ? Price halved in a single day?”

Ether Crowdsale, About a Year Ago

Ethereum crowdfunded its project a year ago, in June 2014, raising around $18 million worth in bitcoins by issuing a pre-sale of its ETH to early investors. The ICO price was 2000 ETH per BTC to a final rate of 1337 ETH per BTC. This rounds off to roughly 30 cents per ETH as per BTC prices at the time. While the team behind the platform was quick to add caveats regarding the future expected value of its token, instead choosing to refer to it as a ‘fuel’ for its applications, it did not deter- both investors and speculators from taking part in the crowdsale. To date, it is the 2nd largest crowdsale in history. Speculation it seems, comes with altcoins territory.

However, part of the conditions set, at the initial coin offering (ICO) back in 2014, was that ETH received for BTC could not be moved or transferred:

Ether will NOT be usable or transferable until the launch of the genesis block”

Ethercoin, Alternative Market Workaround

This feature prompted unauthorized hacks to allow price discovery of these tokens without actually owning or moving any. Ethercoin a proof-of-stake blockchain with a fixed supply of coins provably backed by real ethers with proof of reserves on a 1:1 ratio. Each ethercoin (ETC) is 1 ether; 1 million ETC redeemable for 1 million ethers bought in the pre-sale. ETC has been trading for almost a year now and offered the best measure of the price of ETH on the open market. Before the initial public offering (IPO) Ethercoin price was up to close $ 3 before Frontier launch.

Already, weeks before live release, speculators were anticipating the possible price of Ether at launch. While some strongly believe in the potential of ethereum, and by extension, ETH, others were not as optimistic

“I think the price will start off initially high, then rapidly crash as people dump for profit”

The launch of Frontier (and genesis block) unlocked the preset condition. However, last minute changes by ethereum developers and worse, the complexity of moving these tokens which users complained of, caused an imbalance in the market, allowing a few to have an upper hand and dumping the tokens at the seemingly high valuations. Kraken exchange led the line, allowing traders on the platform to post collateral and immediately trade their ether without having to wait for a signal from devs, this brought volumes to the European exchange.

“As a result, there was a 100% difference in price between Poloneix and Kraken during the early hours of August 8. […] by the time other exchanges allowed trading, the price had plummeted”

Unfortunately, the combined effect of users waiting for X number of confirmations to start trading on Kraken, while the rest tried to figure out how to unlock their ETH and sell, “Not to mention those who were/are not tech savvy enough to get access to their coins”, demand outweighed supply causing price to kick off at high prices, $ 3.

“Kraken’s initial umpity-thousand-confirmation policy – although self-protective – assured a hothouse market with untethered buys but restricted sells. The setup seriously restricted the supply while not limiting the demand. That’s why the price of ethers was artificially high from the start.”

Market remains unsettled

Despite heavy sell offs initially on August 8, price settled at a bottom of $ 1 on Kraken and once users were able to access their coins, market interest resumed sending the price back up again to a peak of $ 2. A rollercoaster ride within a week; with a supply of 72,524,960 ETH, market capitalization went from $ 180 million, down to $42 million and up again to $ 122 million – all within a span of 1 and a half weeks! As of writing this, the price of 1 ETH is $1.33 as per coinmarketcap, with a market capitalization of $ 96 million. Certainly resembles the sort of volatility Bitcoin traders were accustomed to.

Updated: 2015-08-18