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Research

ICOs are not liquidating their ETH treasuries, despite price declines. Yet.

Quick Take

  • ICO treasuries now hold a little over 3.57 million ETH, roughly 3.5% of the total Ethereum supply
  • The ETH selloff hasn’t been as drastic as many anticipated
  • In the last two months, ICO treasuries liquidated (or moved) 172,000 ETH (4.6% of total treasury holdings)
  • In aggregate, ICOs have moved or liquidated 64% of the amount that they initially raised
  • The popular narrative that ICOs are selling their ETH reserves is inaccurate

The price of ethereum has dropped to an 18-month low on Tuesday, settling at $135 at 10am ET. While no one is certain what is causing the recent sell-off, one of the underlying catalysts is certainly the SEC’s heightened enforcement action.

ICO

The SEC cracks down on two ICOs, creating a template for future enforcement

Read more
Two weeks ago, the SEC charged the founder of EtherDelta, Zachary Coburn, with operating an unregistered national securities exchange that allowed trading of tokens that are securities under federal securities laws. Four days ago, the SEC announced it had settled charges against two companies (Airfox and Paragon) that raised funds through ICOs. As The Block highlighted, the SEC appears to be developing a template for ICO enforcement. It therefore seems reasonable to expect further enforcement action in the near term. 

Both Airfox and Paragon were fined and agreed to register their tokens as securities. In addition, they agreed to return funds to investors. The large majority of ICOs raised funds in ETH, while a minority also raised in BTC. According to Airfox’s claim form, the companies will have to return the USD value of the purchase price or trading loss, including the interest.

Most of the companies that held an ICO still hold a portion of the ETH they raised currently remaining in treasuries. If they are pressured by the SEC to return the funds in USD, they will likely have to liquidate much of their treasuries. This would require selling either ETH or BTC in exchange for USD. It is quite likely that the market is anticipating further action by the SEC and, therefore, is already pricing in the anticipated sell off.

According to The Block’s research, the sum of ETH holdings of ICO treasuries is now a little over 3.57 million ETH or roughly 3.5% of the total Ethereum supply (out of which 480 thousand ETH is stuck in the Parity bug.) In April, the treasuries held 4.65 million ETH (4.5% of the supply) indicating that they likely liquidated (or moved) about 23% since then. In April, the ICO treasuries were holding $1.76 billion, while today, they hold a fraction at $475 million.

Despite the decline in ETH price, the selloff hasn’t been as drastic as many analysts anticipated. In the past two months, treasuries of projects that held ICOs liquidated (or moved) 172,00 ETH, or ~4.6% of total holdings. The most aggressive sellers were Status, district0x and Tierion (in order), which sold (or moved) nearly 55,000 ETH combined since September 9. Out of the 57 companies that tracked, 50% didn’t touch any of the ETH in their treasuries.

At least 11 projects that raised via ICO currently have a smaller “market capitalization” than the amount held in their ETH treasuries alone (see table below).

Seven companies hold more than 200k ETH (not including Polkadot, which has funds stuck in the Parity bug.)

In aggregate, ICO-related project treasuries have moved or liquidated 64% of the amount that they initially raised. In other words, they are still holding at least 36% of the initially raised amounts (with ~5% stuck in the Parity bug). As of September, ICOs had moved or liquidated 62%, which means that in the last two months, only 2% of the total raised ETH was liquidated. Therefore, the popular narrative that ICOs have been actively selling their ETH reserves is inaccurate.

One can assume that most of the projects have significant enough cash reserves that they haven’t had to sell cryptocurrency reserves yet. And since the price of ETH continues to drop, it’s safe to assume that projects won’t sell ETH until they absolutely must.

But since the majority of projects that held ICOs aren’t generating any meaningful revenue yet, they will eventually be forced to begin selling ETH to cover operating expenses. When that selling happens, or when the SEC forces projects to liquidate their treasuries, ethereum is likely to experience true capitulation.