Roughly two years ago is when the great crypto bubble of 2017 really kicked off. Projects were launching tokens for everything from mobile payments to dental hygiene, and nothing more than a white paper was needed to raise millions of dollars worth of cryptocurrency via an initial coin offering (ICO).
Ethereum was the platform behind the vast majority of these token offerings, and Ether (ETH), which is the native token of the Ethereum network, was reaching all-time highs due to all of the hysteria around buzzwords like “ICO” and “smart contract.”
And then everything stopped.
The ETH price hit an all-time high against the U.S. dollar in the middle of January 2018, and according to Messari’s OnChainFX, ETH is now down 86% from that all-time high.
In terms of Bitcoin (BTC), ETH hit an all-time high in June 2017. ETH is currently down just over 85% against BTC from that all-time high, according to Coin Metrics.
In fact, ETH’s price in BTC was higher in March 2016 than it is today.
During June 2017, the theory that ETH would overtake BTC as the most valuable and popular cryptocurrency on the market also reached its pinnacle. For example, here’s a CoinDesk article explaining The Flippening, which was the name used for the hypothetical scenario where ETH overtook BTC, one day after ETH hit its all-time high against BTC.
What Happened to The Flippening?
It’s no secret that the vast majority of the tokens launched on Ethereum back in 2017 were either bad ideas or outright scams.
Additionally, there was no clear explanation as to why a successful project with its own token built on top of Ethereum should necessarily lead to an increase in the price of ETH. For example, a lot of people adopting Coinbase and Circle’s USDC stablecoin shouldn’t necessarily lead to a large increase in the price of ETH, as those who buy and hold a crypto asset tend to have the largest impact on that asset’s price.
As pointed out in a report from digital asset research firm Delphi Digital earlier this year, many ICO projects are still bleeding ETH onto the market every month. In other words, there was a lot of ETH being taken off the market and placed in ICO treasuries back in 2017. When the hype around ICOs dried up, so did a large factor in the demand for ETH.
So What Happens Next?
Decentralized Finance (DeFi) has overtaken ICOs as the main talking point of Ethereum evangelists, but it appears DeFi has not yet been able to make up for the supply side increase coming from various ICO projects selling their ETH.
The aforementioned report from Delphi Digital also indicated that ETH could outperform BTC once the next BTC rally kicks off, but that has yet to occur, despite BTC’s near tripling in price so far this year.
Having said that, it’s possible BTC is still in the early days of this latest bull run. A recent report from SFOX indicated that a continued bull run could turn into full-on FOMO from retailer investors this holiday season, and Pantera CEO Dan Morehead thinks a move to $42,000 could be in the cards before the end of the year.
While ETH has been down heavily against BTC over the past couple of years, some of the tokens built on top of Ethereum have been outperforming BTC in recent months. For example, LINK was one of only two major tokens that was up against BTC between April and July of this year. That said, while LINK was up more than 800% against the U.S. dollar at one point, it has since fallen roughly 33%.
Going forward, it will be interesting to watch whether value is accrued at Ethereum’s base layer or if money will move into the projects built on top of the smart contracts platform.
If the push around DeFi is successful, it should eventually lead to an increase in the price of the underlying ETH token, as more ETH would be taken off the market for their use in various DeFi applications. For example, if the MakerDAO experiment works, a large amount of ETH would need to be locked up as collateral for the issuance of DAI stablecoin tokens.
Having said that, Bitcoin also has DeFi projects of its own, including Abra and Money On Chain, which intend to offer stability via the collateralization of BTC.
The next couple of years will be a test in terms of ETH’s resiliency. BTC has recovered from 80% or greater drops against the U.S. dollar on multiple occasions. It’s unclear if ETH can do the same thing in terms of its BTC-denominated price.
On top of that, unlike ETH’s price in BTC, BTC has never been down against the U.S. dollar for a three-year period.