2018 was the year that crypto fell to earth with louder critics than ever. The industry had been hit with what some would say was a much-needed reality check.
The Bearish Market
After an unprecedented boom in 2017, in 2018 Bitcoin lost more than 75% of its value amidst a strike of regulatory backlash.
Following the Gartner's Hype Cycle for Emerging Technologies, outlined above, it is not difficult to spot that the Hype Cycle peak for Blockchain and cryptocurrency were the highs experienced in 2017. The graph, published in August 2018, indicates that we are moving towards the ‘Trough of Disillusionment’. The trend is expected to continue into 2019 and only really start to upturn towards the end of 2019 as the correction in the market takes hold and consolidation continues.
Bitcoin’s epic rise last year may have been more than investor fervor. New research says at least half of the 2017 rise in bitcoin prices was due to coordinated price manipulation using another cryptocurrency called Tether. University of Texas finance professor John Griffin, who has a 10-year track record of spotting financial fraud, and graduate student Amin Shams examined millions of transactions on cryptocurrency exchange Bitfinex. The 66-page paper says tether was used to buy bitcoin at key moments when it was declining, which helped ‘stabilize and manipulate’ the cryptocurrency’s price.
Griffin found that about 87 hours, or about 1 percent, of heavy tether trading could explain 50 percent of the rise of bitcoin, and around 64 percent of the rise of other major cryptocurrencies.
Both Bitfinex and Tether, the company that issues the virtual currency, have been a cause of concern for some in the industry: ’The lack of transparency surrounding Tether raises red flags for me’, said Dan Ciotoli, software engineer and blockchain analyst at Bespoke Investment Group. ‘It’s probable that Tether issuance made significant contributions to artificially high bitcoin prices seen last year.’
On another note very few traders and investors need convincing that price manipulation, fraud, lies, and deception is part of the business model of Wall Street. Why would Wall Street want to buy in at super high prices before rolling out the carpet for their big money buddies to come and join the party? Of course, they want little prices. Was it a coincidence that BAKKT Bitcoin Futures were delayed right as the market started to take a dive? Now, these institutions can come in and buy bitcoin at cheap only weeks or months before offering their Exchange Traded Products.
BAKKT - Bitcoin Futures Delayed Till 2019
Wall Street is enormously large. The New York Stock Exchange alone has trillions in assets listed and does hundreds of billions of dollars of daily volume. That’s just one exchange of the Wall Street. BAKKT’s entry into cryptocurrency is a gargantuan moment as the exchange behind BAKKT - ICE (The Intercontinental Exchange) controls more than 20 different exchanges, clearing houses and marketing services.
After a tumultuous year, the BAKKT Bitcoin Futures announcement was anticipated as the bullish antidote to a difficult year. However, the announcement was first delayed until 24th January 2019, sending shockwaves across the crypto world. The CEO of BAKKT, Kelly Loeffler, reassured people that this delay was in no relation to the markets, saying: ‘As is often true with product launches, there are new processes, risks and mitigants to test and re-test, and in the case of crypto, a new asset class to which these resources are being applied. So, it makes sense to adjust our timeline as we work with the industry toward launch.’
And then, just before end of 2018, BAKKT was delayed, again.
Wall Street is about to get on the cryptocurrency train. Is it going to be good? Or will it ruin the markets? Whilst the delay was frustrating for many, it is encouraging to think that there will be some positive news to launch the New Year with, when the Bitcoin Futures are announced pending CFTC approval in January.
There have been a series of thefts from cryptocurrency exchanges in recent months. Japan’s Coincheck was hacked in January, with more than $500m-worth of digital currency stolen. It started reimbursing customers in March, but faces two class-action lawsuits.
A sharp drop in the price of bitcoin and other virtual currencies occurred after South Korean cryptocurrency exchange Coinrail was hacked. A tweet from Coinrail confirming the cyber-attack sent the price of bitcoin tumbling 10% to two-month lows. Bitcoin was trading at about $6,750 on that Monday afternoon – down from an all-time peak of almost $20,000 in the week before Christmas. In February, it fell to $5,900.
In December, the South Korean exchange Youbit shut down and filed for bankruptcy after being hacked twice.
The latest attacks highlight the lack of security and weak regulation of global cryptocurrency markets. Naeem Aslam at online trading platform ThinkMarkets said: ‘The question is: is there any limit to these hacks? After every few months, we are seeing the same pattern emerging. This is the result of loose regulatory control and regulators must step in to protect the consumers. Anyone who wants to do anything with exchanges should be forced to adopt high-grade security and regular security upgrades.’
SEC Cracks Down on ICOs. ‘The Party Is Truly Over’.
Dr Nouriel Roubini described crypto as ‘the mother of all scams and bubbles’ at the US Senate’s Commission into Cryptocurrency earlier this year. Obviously his main arguments were overwhelmingly sensationalist and irrational. But amongst them there was a glimmer of truth regarding ICOs, with many scams and ‘pump and dump’ schemes causing the SEC to finally crack down and regulate ICOs this year.
All US based startups that have recently completed an ICO now have to face regulation under US Federal Securities Law, this may also extend to non-US based platforms that have accepted US investor funds. The principle problem with the ICO trend has been the promise to deliver a project communicated only via a whitepaper and often, the manifesto which is outlined in the white paper fails to ever be delivered as promised, or at all. Indeed, according to this year research from Boston College, more than half of the startups running ICOs fail within 4 months.
The move by the SEC forces startups to look to the long-term, rather than what was once the short-term win of running an ICO.
The ‘Rise Of Stable Coins’
The high volatility of cryptocurrency has made it a dream for traders but restricted the widespread adoption of crypto and the tech that powers it from wider public and business use. How can you build a business or pay your fiat bills when the value of the currency you rely on can drop so dramatically?
Enter stable coins, a much more attractive prospect for both ICOs and investors. Backed by assets such as fiat currency and property, stable coins such as Tether have seen a surge in popularity this year. The world’s largest cryptocurrency platform, Binance, has listed several stable coins this year, including TrueUSD.
Security Tokens are an exciting new development to occur this year and have come to prominence partly due to the new SEC regulations which treat ICOs as Securities.
Securities are a financial asset that is tradeable, like bonds or shares for example. They are primarily used by institutions to raise funds and allow investors to own part of a company or entity without taking complete control of it, where investors are promised a return in some form, like dividends, for example. Security Tokens are thus the tokenized cryptographic version of Securities.
The interesting thing about Security Tokens is that unlike traditional security assets, they allow for much greater liquidity, as well as a much greater speed of delivery and automation as they are programmable via Smart Contracts.
The Bitcoin Cash Saga
Following a difference of opinion on block size, a war erupted in the Bitcoin Cash camp, which echoed the original Bitcoin fork that led to the inception of Bitcoin Cash in August 2017. In November this year, a hard fork occurred of Bitcoin Cash creating Bitcoin Cash ABC and Bitcoin SV (Satoshi’s Vision) spearheaded by Craig Wright, who himself had previously claimed to be the creator of Bitcoin, Satoshi Nakamoto.
Since the hard fork, there have been claims of double spends occuring on the Bitcoin SV network as well as supposed vulnerabilities due to the amount of centralization on the platform (75% of the hash rate is controlled by four of the Bitcoin SV nodes).
This week, Bitcoin Cash ABC has rallied and is up nearly 40% while Bitcoin SV has also risen but remains in danger of losing ground and falling out of the Top 10 coins for market cap, according to statistics shared on coinmarketcap.com. It remains to be seen how this situation will continue to unfold in the year ahead.
80% Fall of Total Marketcap, 40% Increase Of Coins On The Market
The total market capitalization of all cryptocurrencies fell to around $138.6 billion, down more than 80 percent since its January 1018 peak. Despite the price chaos that reigned this year, the volume of trading and the total number of coins on the market increased by 40%.
Among the most notable success stories was Ripple (XRP) which, although its price fell to less than 90% of what it was at its 2017 peak, is one of the few coins that ends the year with minimal damage. Although the SEC has not decided whether Ripple should be classed as a Security yet, it has been buoyed by partnerships with powerhouses like American Express and Moneygram and moves into 2019 as a coin to watch.
The irony with Ripple rise is it’s thought to be quite centralized at the moment using a bunch of “Validators” (Selected Trusted Nodes) that validate transactions to speed up the process.
The Growth Of Fintech Investments
One of the major themes of the year was the exciting growth of the Fintech sector, which saw record investment. Global FinTech Investment has reached $54.4bn across 1,187 deals in the first three quarters. Capital raised has been increasing year-on-year since 2014 however this year has seen significantly larger growth. So far investment has increased 66.9% from last year compared to just 7.5% from 2016 to 2017.
Many Fintech companies are in a period of transition and looking to Blockchain to provide future scalability and bring their legacy systems and services into the digital age. There are several examples of DLTs already being used within Fintech, including institutions such as the Bank of England.
The Search For The Next Scalable Protocol
This year has seen the growth of DAG (Directed Acyclic Graph) data structures, used by projects such as IOTA, being touted as the solution to Blockchain’s scalability problem. However, just as blockchains struggle to scale, owing to fundamental early stage design choices which are proving difficult to conquer, so too will DAGs. They will hit a glass ceiling where scaling will not be possible without significant centralization as outlined in detail in this article on Why DAGs Don’t Scale.
2019 - The Year Crypto Grows Up
Despite freefalling crypto prices, the underlying Blockchain technology has seen further growth and interest from major financial institutions and businesses this year. New opportunities have emerged, including the rise in demand for Security Tokens and Stable Coins which allow for greater trust and safeguarding for many businesses who are interested in leveraging Blockchain technology, as well as greater security for investors.
Blockchain mass adoption will always be limited by its inherent scalability issues and so, next year, the search is on for the platform that can overcome these limits and start to fulfil the promise of Satoshi Nakamoto’s vision. 2019 will see continuing innovation, but there are still three main problems that need to be addressed if Blockchain platforms are to scale for mass adoption, namely:
• Price Volatility
A Gem is being forged
In this Hell of bad news, unfulfilled promises, pure scams, manipulation, emerging new tech and lack of regulation, one small start-up is making amazing strides in the right direction. The Crypto environment strikingly resembles the chaos during the “Dot Com” bubble, time of great expectations and promises, followed by failures of 99% of projects. Among the ones that survived the bubble are today’s AMAZON, Ebay, IMB, ARM, Oracle, SanDisk, Adobe Systems.
The companies forged in the “Dot Com” bubble had something in common, besides having a truly disruptive idea, they also had a talented founder who built an extraordinary team, and delivered a brilliant execution of the business.
One such company, a start-up today, with an amazing progress utilizing blockchain, is LockChain. Their credo is “Always under-promise, always exceed expectations”. This alone is rare in the Crypto world these days. As a result they not only have a working implementation of a marketplace, demonstrating what can be done on the popular DAPPs (Decentralized Applications) platform Ethereum, even with the limitations of its current blockchain tech.
Utilizing the best current achievements in crypto and putting extraordinary talent into work, LockChain just released the test-net of their own blockchain, which outperforms Ethereum 10 times in terms of speed and thus scalability, and is much better suited for the needs of their marketplace – LockTrip, and a lot more, for the needs of a whole industry – Hospitality and Tourism.
LockChain announced in Medium the LockTrip Blockchain Manifest: ‘While LockTrip could also exist and grow on the Ethereum network, its potential would be significantly limited by the lack of functionalities that come with current Blockchains. We have outlined and discussed 9 such limiting factors in our Manifest.’
And if you are a frequent traveler, an adventurer, if you plan your next weekend escape, a dream vacation or your next business trip, you would certainly want to check the LockTrip marketplace, with over 100 000 hotels you can choose from to book with 0% commission on intermediaries. In average the savings are 20%, compared to any big competitors like Booking.com, Trivago.com, TripAdvisor.com, etc. You can book with your credit/debit card and not ever notice blockchain is used in the background, which is making possible the elimination of intermediaries.
Have in mind the LockTrip marketplace is still in Beta, meaning there are a lot of improvements to be done before mass marketing begins. But savings are real, available now, and you can benefit from them, being among the first to find out about this amazing Gem.
Happy New Year and Lucky LockTrip bookings!
Founder of TheDomainKiosk.com