Due to 5 main reasons:
1) low margin of token utility
2) Huge ico discounts
3) The bounty hunters
4) poor marketing
5) the overall market conditions
LOW MARGIN OF TOKEN UTILITYMarket growth is driven purely by a balance between supply and demand. When companies run ICOS, they distribute utility tokens which are to be used to perform some functions on the platform. These tokens don't represent a share of the company (except it's a security token), hence can only grow if there'a market demand from people willing to use that token for its purpose or from speculators. But, as at now, most ICOS distribute tokens which don't have immediate utility for its users. Because most blockchain innovations are still far from reaching mass adoption, the demand of tokens by real users is slim. Hence, speculators who have no use for the tokens are the ones in control of the game now. Because of lack of enough market demand (owing to low utility), the tokens are liable to be dumped.
HUGE ICO DISCOUNTSIn the quest to gain more funds from their ICOs, most companies now offer huge discounts ( I have seen some ICOs offer 100% discounts) this will only attract greedy speculators who will be ready to dump, once the said token hits exchanges. This has hurt a lot of ICOs but i wonder why many still do it. If a company's tokens have real quality utility, they needn't give out such huge discounts in order to attract people. Quality needn't be cheap to succeed.
THE BOUNTY HUNTERS They are a major contributor too. Most bounty hunters don't really care about the value of a token. All they wait for is for the tokens to launch on exchanges, so they could off-load their bags.
Even though the percentage allocated to bounty hunters is usually minimal, market dump still occurs because, at the launch of those tokens on exchanges, there is usually low volume. Hence, even as little as a handful of sellers can crash the price.
POOR MARKETING
This is the one single aspect that makes or breaks ICOs. Yet, it's an aspect that many ICOs lag at.
The value of a token relies deeply on the Buzz it creates. Great marketing is paramount for the healthough of tokens. If a company has got great products but bad marketing, no one will see the potential that company has to offer. Level of marketing explains why some moderate blockchain innovations have their token value to x100 while other greater blockchain ideas have their token values go negative in percentage.
Simply put, the more Buzz your token creates among people, the more they are willing to hold it (even bounty hunters)
THE OVERALL MARKET CONDITIONThis is more like a self-automated dump
This is probably the biggest determinant. As we all know, most cryptocurrencies are pegged to btc. Hence, they go where bitcoin goes (up or down) . All markets like the forex and stock markets have market cycles. Cryptocurrencies is not am exception. You can have very good marketing, great product and a lot of hodlers. Yet, your token still dumps. This isn't your fault. The market cycle is a predictable cycle that occurs every year in every market. In this case, dump is inevitable.
HOW CAN THIS CAN BE STOPPED
MAKE HOLDERS HAVE A REASON TO HODL!
It all comes down to utility. If a project distributes tokens that can'take be used for anything yet, these companies should find a way to give incentives to hollers (while they build their project)
Such incentives could be
- 5% addition other hodlers's tokens every month: this has worked for many ICOs. Hyperbridge currently does this. Their tokens dumped but the moment they announce this, the tokens price went back up. It works because people believe they will get more by just hodling. This helps preserve the value of the tokens while the companies work on building real utilities for the tokens.
-access to certain products services by holding certain amounts of tokens: Users would be widling to buy more to access those services if it suites them.
Just give the hodlers a good reason to HODL. If there's no reason, then create one.
COMPANIES SHOULD IMPROVE IN THEIR MARKETING CAMPAIGNS Companies should tighten their belts when it comes to marketing. As I said, nothing is more important than good marketing.
AN EMISSION TECHNIQUE SHOULD BE USED FOR HEAVY-LOAD BOUNTIES
Bounty managers should have a smart contract system that emits the rewards of bounty hunters to their wallets in chunks. That way, before bounty hunters recieve all their tokens, that token's market must have recieved enough volume to become unshakeable by bounty tokens.
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