Story by: Clem Chambers
Cryptocurrency and tokens are like any market: When money flows in, the price goes up; when money flows out, the price goes down.
Right now the money flow is out of cryptocurrency and into fiat.
Ethereum is being particularly affected as all those initial coin offerings (ICOs) funded in ethereum have to, and are right to, sell their crypto-funding and get it into fiat. Sadly, it’s hard to pay salaries in crypto and impossible to pay rent, etc., in anything but fiat.
ICO companies are not hedge funds. They must take their fiat and run. This is and will be a drag on ethereum while crypto is in a bear market; it is a vicious circle that can only bottom when money flows back into the market sufficiently to balance the money flow out of crypto into fiat. It is anyone’s guess when and at what level this might be.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Mineable cryptos have a similar but different problem. Miners make coins and increase the money supply. A coin without a purpose therefore suffers an increased money supply but no increase in currency use. Without a use case, a purpose for the coin, only savers of the coin can mop up the new supply. This, too, is a vicious circle as new supplies dilute the value of the coin lowering the price and making the saving HODLers lose money and less keen to buy more.
Coins with an expanding use case mop up their new supply for the coin’s application. Their circulation increases and the result is the value is not diluted. New use cases for coins create demand and increase price. Sadly, most cryptocurrencies do not have an application so are doomed to fall when little money is flowing in from fiat to buy and bury the new money supply.
Original story: https://tinyurl.com/ycr25zpzby