How do ICOs influence the price of Ethereum?

By June this year, the price of Ethereum has risen from less than $10 to just under $400. This 3,900% growth rate has been attributed to various factors including the general euphoria surrounding cryptocurrencies. However, for Ethereum in particular, its half-year growth spurt was mainly driven by the increasing launches of ICOs.

By September, Forbes reported that almost $2.3 billion had been raised through ICOs, most of that being raised in the first half of 2017. The funds raised through these ICOs is directly proportional to the price of Ethereum in 2017. So, how do ICOs influence the price of Ethereum?

How do ICOs relate to Ethereum?

To answer this question, we must go back to the basic structure of an ICO. Fundamentally, an ICO is just a way for a startup to raise capital for their company and/or project. Instead of looking for institutional investment, they could opt to source capital from individuals, an ICO. It goes like this – the startup tells the public what it intends to create, and it offers tokens to those who provide funding. Unlike an IPO, however, these tokens do not always represent equity in the company, but rather access to the company’s services.

Now you may be asking yourself, why Ethereum and not bitcoin? This is where the difference between the two comes in. Bitcoin is meant to act as a virtual currency, mainly for transfer of money. Ethereum, on the other hand, is a blockchain platform on which developers can create their apps. Since most ICOs involve blockchain technology, it would make sense that ether would be more favourable in ICOs. Because of this, there was increasing demand for ether in order to participate in ICOs, thereby raising the price of Ethereum.

How has the price of Ethereum been influenced by ICOs?

The impact of ICO money on the price of Ethereum is clear, as can be witnessed on the cryptocurrency’s price charts. All through the first half of the year, when ICOs were booming, ethereum’s value rose right along. The inverse can be observed in September when both the PBoC and South Korea’s authorities banned ICOs.

These are just the major price shifts, but all major ICOs have had an effect on the price of Ethereum. Even the declines following successful ICOs can be attributed to the cashing out of ether by the ICO holders. All this is to show how much of an effect ICOs have had on the price of Ethereum, and it should guide you on your future Ethereum investments.