The total market capitalisation of virtual currencies dropped to US$192 billion from a peak of about US$835 billion in January, erasing much of the gains seen during the speculative mania at the end of 2017. 

Ether skyrocketed over US$1,000 in February in part as startups built projects on top of the ethereum blockchain and sold digital tokens in exchange for ether in crowd sales known as ICOs. Investors who bought ether to participate in those ICOs drove up the price. Now, some of those projects are cashing out to cover expenses and on concern this year’s cryptocurrency bear market will drag out, according to Biswa Das, who runs cryptocurrency quantitative hedge fund BloomWater Capital.

“These start-ups are raising a lot of funds, but they don’t have treasury management or enough cash management experience, so they’re selling too early and causing a lot of pressure in the market,” said Das. “It was fine last year but right now the the market is so fragile that it causes a lot of pressure.”

At the height of ether’s rally last year, where it soared more than 100 times from below US$10, the digital coin grew so much, it comprised 32 per cent of the total cryptocurrency market, compared with bitcoin’s 39 per cent at the time. Some speculated ether would eventually overtake bitcoin as the most valuable cryptocurrency, a phenomenon known as the “flippening". Projects who raised funds at the top of the market will be the most compelled to sell, said Das, who helps start-ups sell ether across multiple exchanges, to minimise market impact.

While cryptocurrencies rallied in July on hopes that a bitcoin-backed exchange-traded fund would attract new investors, US regulators have yet to sign off on multiple proposals for such a product.

Pressure from ICOs cashing out is compounding with generalised bearishness in the cryptocurrency market on concern about tightening regulation and slow adoption.

Worries that the ethereum platform will not be able to withstand enough transaction volumes to support applications for the mass market, as competitors spring up, have also weighed on the digital asset this year. While raising billions, most ICOs do not have working products as many have been fraudulent or have had security issues.

“Investors are increasingly disillusioned with tokens and ICOs, most of which have been launched on top of ethereum and we’re seeing this play out in the market with continued downward price pressure,“ said Spencer Bogart at Blockchain Capital LLC.

Assuming ICO liquidations of US$5 billion or so led to the continued pressure on the ether price, the negative impact has been magnified due to deteriorating sentiment and low liquidity, wrote Lex Sokolin of Autonomous Research LLP in a note last month.

Research website Santiment, which compiles a selection of ethereum-based projects, estimates start-ups have spent over 110,000 ether in the past 30 days.

Start-ups are likely not done cashing out on ether, but longer term, continued demand to build and hold ICOs on the platform should cause the coin to rebound, Das said. Ethereum remains the most popular platform for start-ups to build blockchain-based applications, as it is used by more than 90 per cent of projects.

“The pain is probably not over,” he said.

Still, anyone expecting bitcoin to provide a haven from turbulence in global markets will have been disappointed. The cryptocurrency’s slide against the US dollar this month is almost as big as the Turkish lira’s 25 per cent slump.