The Australian

Bitcoin’s blight spreads to initial coin offerings amid broader stockmarke­t turmoil

- PAUL VIGNA

Bitcoin’s 70 per cent sell-off from the December peak to its recent low has weighed heavily on socalled altcoins and especially the newer tokens created via initial coin offerings.

Throughout last year, the price rallies in bitcoin and the smaller digital currency ether helped feed the appetite for new coin offerings, in which start-ups sell bitcoin-like tokens. The fundraisin­g exploded, with more than $US6 billion ($7.7bn) raised last year, according to data service Token Report. Now, that process is reversing. In Tuesday’s trading, when bitcoin hit its recent low, many altcoins did as well.

Eos, one of the largest initial coin offerings, or ICOs, was down 67 per cent since January 13, when it hit a record of $US18.37. Tron, which started trading in September, was down 92 per cent since January 22. OmiseGo was down 71 per cent since January 9. Icon was down 75 per cent since January 30. Even an “old” ICO such as Augur, down 69 per cent since January 12, has not been spared.

Most of the larger, more establishe­d altcoins also fell sharply. Ether, the currency used on the Ethereum network, was down 60 per cent since its January 13 record. Ripple was down 84 per cent since January 4. Bitcoin Cash was down 82 per cent since December 20. Litecoin was down 71 per cent since December 19.

The sharp moves underscore both how speculativ­e bitcoin and its peers are and how susceptibl­e they are to investor sentiment.

Bitcoin, which is being used for trading more than for buying consumer goods these days, and other cryptocurr­encies have little realworld value, and most ICOs are tied to projects that have not been launched.

Without any good way to determine a cryptocurr­ency’s value, prices are largely driven by momentum and by buyers at the speculativ­e extremes, wrote Gunduz Caginalp, a professor of mathematic­s at the University of Pittsburgh, and Carey Caginalp, an instructor at Carnegie Mellon University, in a research paper: “Stability will be lacking, so the cryptocurr­encies may simply be a mechanism for a transfer of wealth from the latecomers to the early entrants and nimble traders.”

Bitcoin and ICOs also may not be as insulated from the rest of capital markets as thought. In the past week, cryptomark­ets have mirrored the sell-off in the traditiona­l stock market.

The Dow Jones Industrial Average started turning down last Thursday, and many cryptocurr­encies did as well. Bitcoin slid as low as $US5960 on Tuesday before rebounding. Late on Wednesday in New York, it traded at about $US7930, up 33 per cent from its lows but well below its record of $US19,783. In lock-step, the other altcoins also rose on Wednesday.

“It seems pretty clear to me that there are a lot of investors whose appetite for risk is dictated by moves in the equity market,” said Galen Moore, who runs the website Token Report.

Many new investors in bitcoin and ICOs were coming from stock markets, which until this month had risen steadily. That showed bitcoin and its ilk were not immune to developmen­ts in the traditiona­l capital markets, he said.

Crypto investors have also been contending with regulators in China, South Korea, and the US.

In Washington on Tuesday, the heads of two key federal agencies testified to Congress about digital currencies and ICOs. They said the patchwork of state laws was not effective in regulating the cryptomark­et. Securities and Exchange Commission chairman Jay Clayton said the agency may seek additional legislatio­n.

The market has already started to slow down. Mr Moore noted ICO projects raised $US911 million last month, down from a record $US1.6bn in December.

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