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Are cash-strapped ICOs behind Ether’s underperformance?

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With the cryptocurrency market in the midst of a deep selloff, one of the most popular digital currencies is faring much worse than its counterparts.

Ether, ETHUSD, +9.49% which runs on the ethereum network, is the second largest digital currency with a market cap of $26.1 billion and accounts for 13.9% of all digital assets, according to data from CoinMarketCap.

Since the beginning of the year, Ether is down 65%, as of Aug. 14 closing prices, which isn’t too dissimilar from most digital currencies. However, since the beginning of the month, Ether has shed 41%, compared with bitcoin,BTCUSD, +4.42% which is down 22% and industry experts are pointing to cash-strapped initial coin offerings, or ICOs, as a root cause of the weakness.

An ICO is a crowdfunding tool used by cryptocurrency-related ventures that issue investors coins instead of stock. Their popularity has surged of late with $17.9 billion raised via ICOs in 2018 to-date, according to data from CoinSchedule.

“We have been hearing a few different theories. The one that makes the most sense is the treasury issue, where ICOs are having to sell Ether due to cash shortages,” said Matt Hougan, global head of research at Bitwise Asset Management.

Ether is unique in that the majority of ICOs issue Ether because of its smart-contract capability, and should these ventures have cash shortfalls, the easiest way to raise funds is to sell Ether for fiat currencies, like the dollar, a theory shared by Meltem Demirors, chief strategy officer at CoinShares.

Scaling is the ability of a blockchain to process transactions efficiently and quickly and is cited as one of the issues restricting the adoption of cryptocurrencies. Zhong added that more companies are showing interest in developing their own blockchains due to skepticism around the feasibility of the ethereum blockchain.

Relating Article:  Ethereum Road Seems Unclear

Or maybe it’s just a case of the bigger the rise the harder the fall, remembering Ether did rise 10,000% in 2017.

“Ethereum’s price volatility is a result of market pressures, not anything more fundamental around the technology—which is what the highest-quality projects care about,” wrote Andy Bromberg, co-founder and president of CoinList in an email to MarketWatch.