Cryptocurrencies' 85% plunge from their from peak - with Bitcoin in its longest slump in a decade - is threatening an industry built with billions of dollars raised, including through initial coin offerings (ICOs). This type of funding is the digital currency world’s answer to an initial public offering, wherein investors buy in on the offering and receive tokens instead of stock. Now, these ICOs have essentially halted. Thus, ambitious plans to bring cryptocurrency mainstream and transform industries have been cut off from their main source of funding. This is forcing crypto players to slash their IPO plans, investments and drastically reduce the size of their operations. Many of the cryptocurrency world’s biggest bulls have now thrown in the towel, per a major story in the Wall Street Journal that describes the full extent of the industry's meltdown.
A Harsh Winter for Digital Coins
- Market value of all cryptocurrencies down 85% from Jan 2018
- Volumes on big U.S. exchanges on a steady decline over 15 months
- Cash raised from ICOs down from $12 billion in 2018 to $100 million YTD
- Fail rate at 74% for 2019, compared to 55% in 2018
Source: The Wall Street Journal
On Thursday, the price of bitcoin, the world’s largest cryptocurrency by market capitalization, was down about 80% from its highs in December 2017, when the coin nearly reached a $20,000 value. According to the WSJ, the market value of all virtual currencies outstanding is now 85% lower from January 2018, at the height of the cryptocurrency frenzy. Meanwhile, volumes on the largest U.S. exchanges have also been steadily declining over 15 months, per big data analytics firm TradeBlock.
While major swings are typical of cryptocurrencies, many investors now question whether the currencies will rebound this time. To survive the slump, some companies are cutting costs, while other bigger and more successful players are buying competitors.
At large, investors who participated in the ICO boom haven’t fared well. ICOs brought in $12 billion in 2018, compared to just $100 million YTD, per TokenData per the WSJ. Out of the 50 ICOs tracked by the research firm in 2019, 74% have already failed.
To be sure, the chances of a revival remain. Crypto plunges are nothing new and many investors have enough experience to navigate through them. For example, in 2011, bitcoin fell 95%, the WSJ notes. Still, market watchers such as Barron’s analyst Kyle Chapman, remind investors that just like corporations have their own unique value propositions, not all cryptocurrencies are created equal. Some will prosper while others will crash.