Are ICO Cashouts Crashing Cryptocurrency Prices?


For most digital currency companies planning an ICO, ethereum (ETH) is the network of choice. A project will launch its ICO via the ethereum network, gathering funds from investors in ETH in the process. When the ICO finishes, the company holds a lot of funds in ETH, as well as other currencies. In most cases, these companies do not hold on to these funds for long, though. A recent report by News BTC suggests that the process of ICO companies cashing out of ETH and other preexisting digital currencies may in fact have a deleterious effect on the overall cryptocurrency market.

EOS as a Case Study

One of the most recent major ICOs has been EOS. Following a fundraising period of roughly a year, during which time the developers of the EOS token raised roughly $4 billion in crowdsourced funds, much of the ethereum raised in the process has been converted to fiat currency. The report points to the sale of 300,000 ETH prior to EOS having been listed on the Binance exchange. Transacting with such a large amount of digital currency in a short time period is highly unusual; while it’s impossible to say whether it was the EOS team behind this major sale, the report suggests that this is a possibility. Of course, when such a large quantity of any digital currency is sold off within a short timeframe, the price of that currency is impacted as well.

Other Potential Causes

While ICOs may have something to do with the wave of cryptocurrency sell-offs that have taken place in recent months, there are also other potential explanations. Manipulation remains a primary concern of the industry, although it is also very difficult to confirm. Even still, the movement of large quantities of digital currency at once does not necessarily indicate nefarious activity; indeed, some holders of digital currencies simply have massive quantities of currency that they have access to.

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Another possibility is that ICOs are liquidating their holdings. While some companies may sell off certain amounts of their holdings in order to provide for operational cash, and these movements could happen to overlap and prompt market shifts. With the transparency of the blockchain, it’s likely that analysts will always be able to see these transactions but never be able to conclusively determine who is making them or why.

Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.



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