2018 is in the rearview mirror – Cautious optimism for 2019

  • By Tom Cleveland

  • January 16, 2019
  • 2:55 am BST

New Year’s Day has come and gone, with all the promise that it brings for every aspect of the human condition on the planet, but, as far as cryptocurrencies go, 2018 will be a year that no one will want to remember. Over 80% of the capitalized market value of all coin programs vanished over twelve months of agonizing pain, but the young industry recovered and actually bounced back at the close. Fundamentally, however, there were many positive trends that had their beginnings in the background during the year and should carry over into 2019 with lasting impact.

As painful as it might be, it is actually healthy to review history for a moment, if only to recognize that 2018 was comprised of, yes, the good, the bad, and the ugly, but the stage is set for progress on a host of issues that will ensure that cryptocurrencies and blockchain technology will regain the momentum of the past. Here then is a review of significant events that occurred during 2018:

The Meltdown Begins

Let’s get the worst out of the way first. Bitcoin and most other altcoins hit their peak valuations in December of 2017 or in January of 2018. The notion of an “asset bubble” had been bandied about in the press and amongst analysts for months. The asymptotic rise in valuations was clearly not sustainable. Yes, many traditional investors had invaded the space with a mentality that coined the catchphrase “FOMO”, or fear of missing out. For long-term holders, or ”hodlers”, if we do justice to crypto jargon, they could only look on in disbelief. Do you cash in or ride the wave?

Smart money knew when to jump ship. Hodlers hung on for dear life. Unfortunately, although it was recognized as a good thing in 2017, the Chicago Board of Exchange (CBOE) launched its Bitcoin futures exchange on December 10, 2017. Professional traders suddenly had an avenue to short Bitcoin, and the ones that short for a living were salivating when faced with the crypto asset bubble that was obvious to all. The result was a continuous downdraft in coin values for the balance of the year after January. Bitcoin lost 80% of its value. Ethereum lost 90%. Altcoins without brand prestige were hit even more heavily. The carnage finally stopped in December. Bitcoin prices settled around a $3,800 valuation, as all other coin systems, with the exception of Sablecoins that are supposed to be backed by hard assets, licked their wounds, as well.

The Advent of Crypto Regulations

Regulators had mounted many unsuccessful attacks against what they perceived as an enemy, but 2018 witnessed a more mature acceptance and approach by regulatory authorities. The obvious conundrum was that existing securities law prevalent in the U.S. and copied across the globe did not adapt well to the digital age. The SEC and others, however, had to address the rampant fraud in the Initial Coin Offering (ICO) space. Some $22 billion had been raised with little in the way of measurable results and a great deal of outright fraud. Some countries, like China, banned cryptos. South Korea, a crypto hotbed, banned anonymous trading, recanted on a ban of ICOs, but instituted a variety of rules that may have forced a few exchanges to exit the country.

Surveys indicated that 88% of the exchange establishment would welcome regulatory oversight and the credibility it would bring. Operating and monitoring standards, along with oversight are “must haves”, if institutional traders are to embrace cryptos in a big way. On the positive side, many national and international working groups were formed to design applicable digital definitions and regulations to provide a more appropriate common ground going forward.

Hacks and Fraud

As regulators clamped down hard on ICOs, surveys suggested that fraud levels could exceed 80%. ICO promoters countered by saying that many of the failures were due to poor business plans and incompetent staff, but “pump-and-dump” and “exit strategy” took on new meanings in the ICO world. Many of these projects also fell victim to hacks. Vulnerable systems like Verge, Monacoin, Vertcoin, Zencash, Litecoin Cash, and Bitcoin Gold were attacked during the year. Major compromises and coin losses hit exchanges, as well. Coincheck, Coinsecure, BitGrail, Coinrail, Bithumb, and Bancor recorded massive losses, totaling nearly $1 billion across the industry at large by some estimates.

IT Titans Ban, Un-ban, and Join In

When Google and Facebook banned crypto ads due to pressure over scams and fraud, some analysts likened it to throwing the baby out with the bath water. Both firms reversed their position by establishing review boards to monitor ad content before authorization. Suddenly cryptos went from appearing illegitimate to being legitimate again in the eyes of the public. FB also set up an internal crypto/blockchain think-tank to develop ways to leverage the technology across its 2 billion-plus customer base. Soon, speculation began heating up as to what Google, Apple, or Amazon might be designing in the shadows. No one wants to miss out on the innovative wave of the future.

A Hard Fork War in the Ranks

When there are disagreements over upgrades to an existing coin system, the only compromise solution is a “hard fork”, a divorce of sorts in the crypto world where one system suddenly becomes two separate entities overnight. Bitcoin Cash was at the center of this “civil war”. The “fork” occurred on November 15, 2018, sending crypto values sinking into a morass. The two new coins, Bitcoin SV and Bitcoin ABC, were both pounded even harder. Confidence in cryptocurrencies was center stage and without much in the way of support for at least a month. Cryptos finally recovered, if limping along can be termed a full recovery.

Stablecoins Enter the Scene

As crypto prices went deep six, the concept of a “Stable Coin” emerged. The progenitor was Tether, which was supposed to be backed by USD reserves in a “1:1” ratio. The value of “USDT”, as the coin was named, rarely hit its expected “1:1” level, causing rumors of unsubstantiated reserves that were difficult to refute publicly. While controversy surrounded Tether, a host of other Stablecoins were launched. These included such names as LBXPeg (by London Block Exchange), Paxos Standard (by Paxos Trust Company), Gemini Dollar (by Gemini Trust Company), USD Coin (by Circle Internet Financial Limited), and Candy (by Bank of Mongolia).

Institutional Players Get Off the Sidelines

A number of major projects directed specifically at the institutional sector began to take shape in 2018. Fidelity Investments announced that it would commence Bitcoin trading, along with custodial services designed for the institutional investor. It had already admitted to having a private mining operation, as well. The NASDAQ and the Gemini exchange agreed to cooperative sharing arrangements to address specific issues that the SEC had enumerated on several occasions, as prerequisites for approving a Bitcoin ETF. It had already turned down nearly a dozen applications, but 2019 looks as though it might be the year. The Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE), is developing Bakkt, a state-of-the-art digital asset platform that will commence operating as a regulated futures exchange for Bitcoin in the first quarter of 2019. MicroSoft and Starbucks are also part of the action of Bakkt, which is designed specifically with the institutional investor in mind.

Concluding Remarks

2018 was certainly a year filled with drama and bearish overtones for cryptocurrencies, but it was also a year where key milestones that will have major impacts in the future were initiated. Critics were forever calling for the funeral to proceed for the crypto ecosphere during the course of the year, but the industry bounced back. The market capitalization of the entire industry, including coin systems, miners, exchanges, and support companies, was significantly large enough that it could withstand the constant shock of events that made up 2018. Hopefully, this resilience will not be tested anytime soon.

2018, however, is now behind us. Major projects begun in 2018 will be coming on stream in 2019. Analysts are also suggesting that the time is ripe for consolidation, a healthy trend that can only make the industry stronger, as winners and losers sort themselves out. Within this context, many analysts have also suggested that Bitcoin will rise again to assume even greater status in the year to come. As for this year, if we learned anything from the lessons of 2018, it might be that cautious optimism may be the more prudent attitude to maintain, as events transpire, both good and bad.