Since the beginning of the year, “smaller” projects from our 2017 ICO sample sold 62.8% of the ETH they raised in 2017, while bigger projects sold only 18.7% of their 2017 ETH stack. This confirms obvious thesis that smaller projects are more aggressive when it comes to ETH liquidation.

7. Smaller Scale ICOs Might Perform a Firesale But Their Impact is Limited

Although there has been a lot of large ICOs this year (Telegram, EOS) which were able to attract private investors’ money, the public sales are cooling off. In Q2 2018, an increase in ICOs that raised below $5M was seen: there were 69 projects raising below $5M, almost 4-times as much as in Q1 — which had only 19 projects raising less than $5M⁴. The recent ETH slump resulted in 50% decrease of projects raising in Q2 which means there is more and more smaller projects that are undecided whether to hold to their ETH position or lock their treasury value by selling it.

The ether domino effect, a threat which would result in founders selling their ICO-raised ETH to save their treasuries and accelerate the price decrease, might materialize due to weaker ETH demand.

Although we saw some bounce in ETH sent to exchanges in the last week or two, and smaller ICOs present a higher risk for panic selling, their total ETH holdings are limited and shouldn’t impact ETH price significantly. As pointed out, the data clearly shows high ETH selling activity even prior to recent price decrease, particularly among smaller ICOs.

Our Opinion

We believe that the current sell-off is mostly sentiment driven and due to weaker ETH demand. ICOs are cooling off, consequently providing less demand for ETH, accompanied by Ethereum scepticism about dApps and blockchain use for certain services, utility token use and regulatory uncertainties. On a positive side, most of ETH held in wallets is still held by large ICOs which don’t expect to sell their holdings anytime soon, as they hedged during the year and have enough firepower to last them for a while.

We always advised our clients to diversify their crypto portfolio. Currently, we see less downside for Bitcoin, but at the same time Bitcoin has less upside than Ethereum if market reversal happens due to traditionally higher beta for Ethereum.

Since it is hard to time the bear market turning into a bull market, ETH positions should be kept, but we advise to limit it in regards to the above concerns. Our experience tells us that most of the ICOs are very Ethereum biased in their treasuries. We strongly advise clients to have enough fiat firepower to cover their costs for at least 12 months, and to actively manage their crypto part of portfolio, based on such market signals, while waiting for market reversal.

The research involved in this article was a team effort — Primoz Kordez, Saso Moskon, Tilen Drzan, and Marko Stemberger.

Information provided is not to be considered as an investment advice.