Cryptocurrencies are known for their volatility, which is appealing to traders to make a bid. At the beginning of last year, Ethereum traded up to $1,431, before falling drastically to around $200 a few months later, continuing on a slower descent afterward, and trading at $116.5 yesterday. Looking at the past few months, there is no denying that we are in a bear market now. Why is the price of Ethereum falling? How will the price go in the future? We will explain the cause and effect in this article.
The Ethereum price drop
The Ethereum price has gone through several downfalls last year. In September we had the Ethereum price drop to $170.26, which is down close to 90% of its highest record of $1,431 in January.
In December, the Ethereum price fell to around $80 after a short-term bullish reversal, which is down 94% from its peak in January.
Due to the continuous Ethereum price drop, many traders are desperate to know why is this happening? Is now a good time to buy Ethereum? Are there any practical predictions on Ethereum price in 2019? Don’t worry. In the next paragraph of this article, we will talk about why is the price of Ethereum falling.
Why is the price of Ethereum falling?
As we all know, the Ethereum price is affected by its demand and supply. The price changes when its demand and supply are unequal. What’s more, the actual utility also plays a crucial part in the volatility of its price. In the case of BTC, which is purely speculative, people hold the belief that someone will offer a higher price to buy your BTC than you bought before from others. Ethereum, however, is a different case.
The original intention of inventing Ethereum was not to be used as currency. As Vitalik Buterin wrote in Ethereum white paper, it is “a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications. Thus Ethereum’s value is tied to its ability to serve as the foundation for decentralized applications as well as a cryptocurrency. In other words, the launch of new DAPPs will cause those who believe in the project to invest. Then why is the price of Ethereum falling despite the fact that so many new DAPPs are being released?
One reason is believed to be the DAPP’s current low usage and user base. A report shows that daily active users of all DAPPs currently only amount to about 8,000. One problem might come from the fact that DAPP users cannot use it before purchasing the DAPP’s own token; this creates a barrier for new users and may deter many, making mass adoption that much further. Meanwhile, the current Ethereum network is still slow and inefficient. Statistics show that after CryptoKitties’ release, one of the first DAPPs, pending Ethereum transactions vastly increased; thus slowing the whole network and making it less attractive for DAPPs users. Furthermore, the average cost per transaction was 0.0976ETH and the transaction fee became too high when Ethereum hit a peak of $1431 in January last year. The volatility of this cryptocurrency makes it hard for users to predict how much a transaction will cost, which prevents them from committing fully to the usage of DAPP in their daily life.
The value that Ethereum has over Bitcoin, the DAPP and smart contract system, is then not provided sufficiently and the whole system remains unattractive for many, which in turn does not help for the cryptocurrency value.
What else could cause the price of Ethereum to fall?
Another usage of Ethereum is the contribution to ICOs. When a large amount of ICOs is in the works, people are likely to buy ETH to invest in them which in turn drives up its price. ICOs in 2018 raised $18,684,049,071 of investments and 42% of this amount was raised by 6 companies. In order to use what was collected, these companies had to sell a large volume of Ethereum. As the supply increased by so much in such a short time, the Ethereum price was affected.
The exact circumstances and reason that pushed the Ethereum price down are hard to quantify and verify independently, but the above-mentioned factors played a big part in the fall of the price of what was and remains a major cryptocurrency.
The future of Ethereum
Can we infer from the information above that the Ethereum is no longer worth investing? Of course not. ETH and DAPP developers are aware of the situation and are striving to improve both the network and applications that can result from it.
Many investors claim that ETH has been undervalued. One of them stated,"I still see ETH as having the brightest prospects of any cryptocurrencies, both as a platform for DAPPs and as a globally usable digital money/store of value. By fulfilling that role, the digital currency is far more than its current market capitalization.”
Meanwhile, Nigel Green, CEO of a leading global financial consulting firm said that the price could hit $2,500 by 2019 due to increased usage of smart contracts and demand for cryptocurrencies.
As far as many traders are concerned, the future of Ethereum cannot be predicted of defined in the short term, but rather should be looked from a long term perspective and across a multitude of factors.
This concludes today’s article on why is the Ethereum price falling. We hope you learned a lot, enjoyed the read, and stay tuned for more great content.
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