4 Ways the Ethereum Bubble Could Pop

4 Ways the Ethereum Bubble Could Pop

In a recent video posted to his personal YouTube channel, Dogecoin creator Jackson Palmer explained how, in his view, the frenzy around Initial Coin Offerings (ICOs) is causing a speculative bubble in the price of ether, which is the native token of the Ethereum network. In the video, Palmer discussed four different ways the bubble could eventually pop.

“It could go on indefinitely, there’s no real precedent for this,” said Palmer. “But I think many people in this space believe it’s not sustainable. Something is going to make this bubble pop in the future, we just don’t know what.”

Palmer noted that the smart-contracting capabilities of Ethereum aren’t really being used for anything other than ICOs right now, and he “thinks that’s really telling”.

1 – An ICO Gone Wrong

When discussing specific reasons as to why the bubble in the price of ether could pop, Palmer first pointed to the possibility of an ICO going terribly wrong. The Dogecoin creator pointed to The DAO as an example of this issue revealing itself in the past.

“[The DAO] was one of the first big smart contract ICOs on Ethereum,” explained Palmer. “They raised millions and millions of dollars, but the problem: there was a bug in the code. On Ethereum, code is law – it’s immutable. Hackers got in, they exploited this bug, and they stole millions of dollars.”

After The DAO, the ether price declined by more than 50 percent over the next six months. Since then, it has gone on to completely destroy all previous all-time highs for the digital asset.

Palmer pointed out that The DAO also showed that Ethereum was not immutable because developers decided to offer hard-forking code for the purpose of bailing out those who were negatively affected by the whole fiasco. The vast majority of users followed this new chain to effectively take funds from the hacker and give them back to DAO token holders.

2 – A Lack of ICOs

According to Palmer, another reason the ether bubble could pop is a general lack of interest in future ICOs.

“If there isn’t a new ICO every week driving down the supply and increasing the price, then it could kind of self normalize,” said Palmer.

Having said that, Palmer does not see this happening anytime soon.

“I think it’s really everyone wants to get in on an ICO right now, and I don’t see any signs of it slowing down,” said Palmer.

3 – Network Splits

Another possible reason for a future drop in the ether price mentioned by Palmer was the possibility of future network splits. In the aftermath of The DAO, the network split into two different blockchains, known as Ethereum and Ethereum Classic. Those who did not want to return the hacker’s funds to DAO token holders are now found on the Ethereum Classic version of Ethereum.

In Palmer’s view, this sort of split could happen again.

“There are upcoming changes with Ethereum,” explained Palmer. “They want to switch to proof-of-stake. We don’t really know when that’s going to happen. The timeline isn’t concrete. But another thing is what if there’s another DAO situation? What if there is another situation where a buggy contract results in the loss of millions of dollars. Will Vitalik [Buterin] and the leaders of the Ethereum community do another hard fork and will that result in another network split where you end up with Ethereum Classic Two or something along those lines?”

Recently, a buggy smart contract led to a loss of over $10 million worth of ether for QuadrigaCX, which is a cryptocurrency exchange in Canada. There was not much discussion in the Ethereum community around forking the blockchain in an effort to return the lost funds to the exchange.

4 – Intervention by the SEC

A final possible reason for the ether price bubble to pop mentioned by Palmer during his video was action from the SEC. According to Palmer, it’s possible that the SEC could decide that many ICOs could be defined as the sale of unlisted securities to unaccredited investors.

“That’s totally possible,” said Palmer. “The SEC take this stuff seriously, and any of these ICOs that are selling tokens to people in the US run some very big risks in doing so if they cannot beat something called the Howey Test.”

In the United States, the Howey Test is effectively a way to figure out whether some sort of asset should be legally considered a security.

“What I want to stress though is it only takes one of those things to happen for this whole house of cards to come crumbling down because once the price crashes, investors lose confidence, and then developers are deterred from creating further ICOs, the whole thing comes undone,” concluded Palmer.

Picture from Wikimedia Commons.

About The Author

Kyle Torpey

Kyle Torpey is a freelance writer and researcher who has been following Bitcoin since 2011. His work has been featured in VICE Motherboard, Business Insider, NASDAQ, New York Post, The Next Web, American Banker, and other media outlets. You can follow Kyle on Twitter, send him an email, sign up for his daily Bitcoin newsletter, or visit his personal website.

  • Brian447

    creator of dogecoin isn’t a credible source of info on anything…the bubble will pop because it’s a bubble.

  • Fabián

    This new? is a joke. I mean, who in his right mind would cite the creator of dogecoins to give credibility to assessments.

  • ntziolis

    I love the simplicity of the explanations … even though there just wrong, they surely sound nice 🙂

    #1 So far ICOs have only been used by crypto startups … right now thousands of non crypto startups are prepping their ICO because
    #1.1 doh its easier to raise money this way than through a VC that actually might know how to evaluate you vs total a novice all you need is a website and some material + some team members or advisers with good social media standing
    #1.2 your potential investor base increases significantly to literally everybody on this planet vs. for example in the US right now only high net individuals can invest in VCs (other countries have similar laws).

    ICOs will still be done even if the cryptos are going down by 90% because the ICO prices would just be increased meaning that if the price bounces back even 10% let alone back to where it was the founders would be filthy rich could pay back investors without EVER developing a product. Turns out there are plenty of people that will even scam people to get rich let alone the ones actually looking for an investor to build something.
    So if the price crashes heavily there will be MORE ICOs with longer holding periods and guess what that does to a price….

    #2 SEC my ass they can only control what happens to US institutions … as long as all of the WORLD’ s countries do NOT come together to shut down fiat influx. Meaning prevent ANY further fiat moving into coins there is NOTHING they can do to shut it down. That wont happen because:
    #2.1 When did the world ever got together in short period of time to decide anything of importance unanimously ?! … yeah exactly .. never. Turns out there will always be a country that will let semi legal things happen because they will be beneficial to them (just look at whats happening with taxation and Ireland or Luxembourg)
    #2.2 There are countries that have sanctions against them to fully participate in the banking system that have a HUGE interest to circumvent the traditional centralized approach because this way they can get around the sanctions (I’m looking at you russia)

    the split fear of bitcoin folks:
    So the hole potential of a split debate and the fear connected to it is inspired by bitcoin weaknesses (power of miners etc) .. Ethereum is different, almost all dev is done by a single group and there is one guy that has final say for the time being … Hate it or love it but there is no potential of a conflict if the decision is sensible, people will go with whatever the V. suggest. Look at Linux to see a sample of this in real life.
    Just think about it why would the people that hold coins object to getting more power and moving the miners out of the equation long term?!? Also this path has been clearly mapped out from the beginning so its hardly a surprise to the people that are involved enough to actually be able to voice a concern and matter.

    On you other points we simply have to disagree:
    I feel the DOA situation is the greatest display of how a crpyto can self regulate in a time frame that would have been virtually impossible previously. Also I do not consider this a split if 95% of people agree the 5% are just wrong in a system were majorities matter.

    I think you are missing the clearest potential reason for a future Ethereum crash … V. dissapears or dies (V if you read this totally hypothetical :)). Dissapearing would actually be worse than dying because the rumors about potential holes in the system that were planted could NEVER be silenced in time before confidence has vanished… so now we are talking death, disappearance + consiracy theories .. thats how founded this article was. Think before you write or quote people 😉

  • ntziolis

    Marking a 5 paragraph post that had rebuked your posts statements 1 by 1 as spam ? … good to know how you think about facts but we knew that from your post already

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