When an ICO get x millions in Ethereum, how would that convert to dollars? I assume the market would come down crashing if they places that in one go, but would it be possible to sell batches of 100 thousand every now and then and indeed get x million in dollars?
3 Answers
Trading volume for ETH (in all pairs its publicly traded at) is reportedly somewhere in the vicinity of the equivalent of half a billion $. All the while 2017's ICO offerings including non-ETH based ones gathered around approximately 3 times in 8 months.(source)
Based on that I fail to see how an ICO publishing company could crash the market. I also dont see why any ICO would want to push aggressively the underlying network they based their token on (aka ETH) by selling frenziedly.
After all, why should they want to urgently cash out all their holdings within hours, paying salaries & fixed capital overhead?
-
1
If an ICO gets $250 million in ETH, which is ~25% of the 24h trading volume right now, and wanted to sell it all within an hour, then yes, the ETH price would plummet and the ICO would not get $250 million. The ETH price would recover fairly quickly and this would be called a "flash crash".
Two common ways to avoid causing a flash crash and not getting the full value at current price are
- Creating a "sell wall" at the price you want and letting the market eat up the wall over time.
- Splitting the total into smaller batches and selling a batch a day at current market price.
answered Nov 10, 2017 at 14:42
This boils down to an economics problem. Namely: how do we introduce new marketed supply without (significantly) decreasing price?
Microeconomics in a nutshell states that as quantity supplied increases, price decreases.
However this effect depends on a few things. First, we're interested in how much supply is introduced into the system. Second, we're interested in something called the price elasticity of demand. This is the measure of how responsive the demand will be to a change in price. Price elastic demand will cause a large drop in price when the supply increases. Price *inelastic" demand will cause a less significant drop in price for the same supply increase.
Let's visualize this with a graph.
As you can see the more elastic (vertical) demand curve causes a greater drop in price for the same increase in supply.
This begs the question: is the price elasticity for Ethereum elastic or inelastic?
The answer is... It's hard to quantify but probably relatively inelastic. Typically, the fewer alternatives there are to a product, the less price elastic demand will be. Ethereum alternatives do exist, but these (currently) have significantly less utility than the main Ethereum chain.
What does this mean?
Well, if we can model price elasticity of demand, we can decide how much ETH to introduce into the market in order to hit a certain USD return. If price elasticity is high, we want to introduce significantly less ETH at any one time. If it's low, we can introduce a lot more.
In general your strategy to get the most possible return will be to sell off a small amount of ether at a time, depending on how price elastic the demand for ETH is.
You also may have other options like over-the-counter trading. This basically means you trade directly with someone instead of doing it over an exchange. It also means you know what price you're getting and don't have to worry about tanking the ETH price by adding to the public supply.
