The price of ethereum dropped below $500 this weekend. Though it’s since risen back to around $550 as of Monday morning, the dip is a reminder of how far the cryptocurrency has fallen since January, when it was at one point trading at more than $1,400.
So why has the once-mighty ethereum plummeted in price over the past few months?
It’s important to note that the entire cryptocurrency sector is in a bit of a slump, down since prices skyrocketed toward the end of last year. Bitcoin has been hovering at or below the $10,000 mark over the past month, down from its record of nearly $20,000. And Litecoin, one of the biggest cryptocurrencies, has dropped from around $240 to $140 in the past month. It’s unclear at the moment whether this is a bubble burst or just a correction.
Cryptocurrency commentators have attributed much of this downward turn to increasing scrutiny from regulators, which has spooked investors. With governments in China and India planning hardline crackdowns on exchanges and trading, and regulators in South Korea on the fence, there’s been much talk of a global push to rein in cryptocurrencies.
Timothy B. Lee writes in Ars Technica that ethereum was hit particularly hard by comments on Thursday from the Securities and Exchange Commission (SEC) Enforcement Division’s Co-Director Stephanie Avakian, who said that the commission had launched “dozens” of investigations into initial coin offerings (ICOs). The ethereum platform is popular among startups for hosting new cryptocurrencies. These cryptocurrency entrepreneurs need to buy the ethereum token in order to jumpstart their own ICOs, which was helping to prop up ethereum’s price. The revelation that the SEC is placing more regulatory pressure on ICOs likely caused the ethereum market to lose its footing.
Regulatory moves are a common catalyst for cryptocurrency price crashes. Bitcoin fell to $9,200 in January when Bitconnect, a cryptocurrency exchange that had been accused of being a Ponzi scheme, shut down after receiving cease-and-desist letters from Texas and North Carolina’s securities boards. Bitcoin’s price also took a 6 percent hit last Wednesday when Google announced that it would no longer allow cryptocurrency ads on its platforms.