2018 Cryptocurrency Year-in-Review: The Bubble Lives on Amid Growing Institutional Interest and Borderline Regulation
This in-depth 2018 cryptocurrency year-in-review takes a closer look at how the ten-year-old market performed throughout the year. There were so many talking points such as the decline in digital asset prices, the refusal of the U.S. Securities and Exchange Commission (SEC) to approve Bitcoin Exchange-Traded Funds (ETFs), failed upgrades on the Ethereum network, EOS’ record-breaking $4.1 billion-year-long ICO, growing institutional interest, Malta’s comprehensive blockchain bills, and more.
All these facts point to a volatile yet growing young industry in need of mass adoption and favorable regulation from powers that be.
The industry had its worst moments with naysayers such as Nouriel Roubini emotionally breaking down while discrediting Bitcoin and calling post $20,000 Bitcoin buyers bad names. At the same time, the likes of the eccentric John McAfee promised to run for POTUS (President of the United States) to raise awareness about cryptocurrencies.
The SEC pressed its foot down as it filed lawsuits against celebrities who unlawfully promoted initial coin offerings (ICOs) – Floyd Mayweather and DJ Khaled immediately come to mind.
The market had its better days as even Christine Lagarde, the chief of the International Monetary Fund (IMF) encouraged central banks to go along with the winds of change and adopt the digital form of money. Joseph Muscat, the Prime Minister of Malta addressed heads of state at the 73rd United Nations General Assembly and boldly told them that “blockchain makes cryptocurrencies the future of money.”
While we cannot completely predict the future, we can use the past to map the way forward – and our task is to dissect the most interesting and relevant crypto developments of 2018.
2018 Bitcoin predictions
One of the most interesting things that speculative investors were interested in is the prediction of Bitcoin prices. Analysts and major players didn’t disappoint – much to the delight of Bitcoin HODLers and traders.
Mike Novogratz, a former hot-shot hedge fund manager turned Bitcoin bull predicted last year that the price of Bitcoin would reach $40,000 in 2018 – twice its all-time high of nearly $20,000. He was off the mark and adjusted his prediction in Q4 to fit the situation on the ground. He said the number one cryptocurrency would rise to $10,000 in the first two-quarters of 2019.
John McAfee’s Bitcoin predictions were (and still are) as interesting as the character who is known for creating the McAfee antivirus software. In an interview with Cointelegraph, he predicted that Bitcoin will reach $1 million in 2020.
In support of his prediction, he said,
“It’s very simple, I’m a mathematician. As you run the numbers, the number of people using Bitcoin and the number of transactions, it’s escalating tremendously. That’s the true value… The true value is going to eventually be based [on] usage and if you track the usage curve, a million dollars by the end of 2020 is conservative.”
Regarding running for the presidency in 2020, he said he wasn’t looking forward to winning the election but to use the platform to talk about cryptocurrencies.
Others made similar predictions and only a few (minus Bitcoin critics) foresaw the crash of the market. The market taught people many things, particularly that cryptocurrencies and blockchain technology are more than the price of Bitcoin.
Growing institutional interest in the crypto sector
Bitcoin was born out of cypherpunk communities – anarchists who use cryptography to evade detection from governments and authorities. The first few years of Bitcoin were the quest for adoption and speculative investors played a major role in bringing that about.
However, 2018 was a turning point as the tide slightly shifted to institutional players who are showing a cautionary but growing interest in the largely volatile market.
The crypto market received a boost in July when BlackRock, the world’s largest asset manager with approximately $6.3 trillion in assets under management (AUM) showed interest in exploring the crypto sector. The asset management firm commissioned a working group to look into cryptocurrencies and its underlying technology – blockchain.
This was a major development for the crypto industry because the firm’s CEO, Larry Fink had previously called Bitcoin a speculative asset used for money laundering.
Fink said his firm is a “big student of blockchain” and added that he did not see “huge demand for cryptocurrencies.”
In a memorable August, Intercontinental Exchange (ICE) – the parent company of the New York Stock Exchange (NYSE) collaborated with Microsoft, Starbucks, BCG, venture investors, and more to announce the launch of Bakkt, an institutional-grade one-stop shop for institutional investors.
Goldman Sachs, an investment bank and its former partner, Mike Novogratz, the CEO of Galaxy Digital pooled in $15 million to invest in BitGo, a blockchain security firm. The U.S. investment bank also led a $25 million investment round in Veem, a blockchain payments startup.
Other major traditional financial firms and individuals that have shown interest in the sector include the Swiss Stock Exchange, Stuttgart Stock Exchange, Malta Stock Exchange, Nasdaq Ventures, Fidelity, Steven Cohen, Peter Thiel, and more.
Yale, Stanford, Harvard, MIT Endowments Invest in crypto funds
David Swensen, the Chief Investment Officer of Yale University’s $29.4 billion endowment fund made his first bets in crypto when news broke out in October that he had invested in two venture funds dedicated to crypto.
Swensen and his team invested in Andreessen Horowitz’s $300 million crypto fund and Paradigm, a cryptocurrency focused fund started by Fred Ehrsam, the co-founder of Coinbase and Matt Huang, former Sequoia Capital partner.
Swensen is one of the world’s respected money managers and has influenced the way other endowments are managed. He joined Yale in 1985 when the endowment fund was just over $1 billion. Also known as “Yale’s in-house Warren Buffett,” Swensen is likely to influence other endowments to at least consider betting on crypto.
It later emerged that Harvard University, Stanford University, Massachusetts Institute of Technology (MIT), Dartmouth College, and the University of North Carolina have all invested in one cryptocurrency fund or more, a clear sign that the asset class’ interest is growing among institutional investors.
The universities and colleges used endowments to fund research, faculty salaries, and financial aid.
Bill Barhydt, CEO of cryptocurrency exchange Abra said people are afraid to take risks and be the first to dive into crypto. “People are excited about it but afraid of being the first, or having to explain themselves,” he said.
EOS ICO breaks a record, raises more than $4 billion
Block.one’s EOS broke records by becoming the first crypto company to raise more than $4 billion in a year-long ICO. EOS’s nearest competitor, Telegram, managed to raise $1.7 billion in a crowdfunding exercise open only to a select number of institutional investors.
EOS, referred to by some as Ethereum on Steroids, is a blockchain protocol for creating decentralized applications (Dapps) – a direct competitor of Ethereum and Tron.
The ICO was followed up by a MainNet launch that was chaotic at best. While there were several platforms that did what EOS was promising to do, EOS gathered momentum on the ticket that its platform was more scalable. The MainNet launch was scheduled to take place on June 2 but it was still not yet live after a week.
EOS faced criticism for its delayed main network launch, governance, and so-called constitution. Nick Szabo, a well-known computer scientist and cryptographer took to Twitter to air his dissatisfaction at EOS.
“Great thread about how much EOS depends on a naively drafted “constitution”, human-interpreted wet code. As a result, EOS will be labor-intensive, permissioned, jurisdictionally biased, and will have poor social scalability,” he tweeted.
Whiteblock, a U.S-based blockchain testing company made startling claims in November that EOS is not a blockchain protocol, but an over-glorified cloud database. The credibility of the report was questioned after it was alleged that the claims were made by people close to Ethereum – EOS’ rival.
2018 acquisitions in the crypto sector
115 deals involving blockchain and cryptocurrency companies were announced by mid-October – marking a significant surge from the 47 deals completed in 2017 when the price of Bitcoin geared towards its all-time high.
The deals came in all sizes. Data compiled by JMP Securities suggest that the majority of the mergers and acquisitions were valued at less than $100 million. There were some interesting and mega deals as well.
The Goldman Sachs-backed Circle announced the acquisition of Poloniex cryptocurrency exchange on Feb. 26. The deal was valued at $400 million.
A Belgian-based investment firm NXMH paid a rumored $400 million in an all-cash deal to acquire an 80 percent stake in Luxembourg-based cryptocurrency exchange Bitstamp. Nejc Kodric, the co-founder of Bitstamp retained a 10-percent stake in the exchange. The acquisition did not disrupt the daily operations of the exchange. NXC Corp, a parent company of NXMH bought Korbit cryptocurrency exchange in 2017.
Singapore-based BK Global Consortium led by surgeon Dr. Kim Byung-gun acquired Bithumb, a South Korean cryptocurrency exchange. In the deal, BK Global Consortium bought 50 percent shares plus 1 from BTC Korea Holdings, which was the major shareholder with a 75.99 percent stake in the exchange. The $353 million deal is expected to be finalized in February next year.
Tron blockchain platform and its eccentric leader, Justin Sun who is known for making “announcements of announcements” reportedly paid $126 million for BitTorrent, the world’s largest file-sharing site. The road to the deal was sour as it involved restraining orders.
According to Satya Bajpai of JMP Securities, some acquisitions were land grabs for talent. Coinbase cryptocurrency exchange acquired Earn.com for $120 million. Balaji Srinivasan, the founder and CEO of Earn.com became Coinbase’s first-ever CTO.
Big crypto names such as Bitmain, Binance, Huobi, Stellar, and more were also involved in mergers and acquisitions.
Blockchain technology and cryptocurrency regulation
2018 was a transition year as cryptocurrencies moved from obscurity to a new transparent and soon-to-be regulated class asset. The bear market of 2018 was largely influenced by the negative regulatory position taken by China, South Korea, and more at the beginning of the year.
While there is still a long way to go before regulation can be a positive contributing factor to the market, 2018 has seen a dramatic improvement in crypto regulation.
Malta – the Blockchain Island – is a perfect example of how other countries should regulate their crypto sector. The tiny European country became the first jurisdiction in the world to pass into law three comprehensive blockchain bills. The country passed the Virtual Financial Assets Act, the Innovative Arrangements Providers and Services Act, and the Malta Digital Innovation Authority Act into law.
The country has benefited immensely from the legislation as companies such as Binance, OKEx, Bittrex, etc. have set up operations in Malta. Switzerland is also another European country that enacted positive regulation to attract crypto startups.
Japan has a friendly attitude towards crypto regulation but high-profile hacks of cryptocurrency exchanges have forced the country’s Financial Services Authority (FSA) to step in to regulate the market and protect investors from losses.
After negotiations between the FSA and exchanges, the regulatory body allowed the exchanges to form a self-regulatory body – Japanese Virtual Currency Exchange Association (JVCEA) – to police and monitor the industry.
The regulation of cryptocurrencies in the U.S. is very pivotal because it could potentially determine how other countries and territories regulate the digital form of money. In the U.S, cryptocurrencies are not considered to be a legal tender while the regulation of exchanges varies by state. Moreover, federal authorities have different opinions on the definition of cryptocurrencies.
The SEC has constantly sent its message by rejecting and delaying Bitcoin EFTs as it says that the industry is yet to mature.
The Internal Revenue Service (IRS) is serious about cryptocurrencies as it tries to quell tax avoidance. The agency has already spent around $2 million to identify and find coin holders. Ohio recently became the first U.S. State to allow businesses to pay their taxes in cryptocurrencies – a big move that could potentially inspire other states to follow suit.
Germany, the biggest economy in Europe has been calling for global coordination in regulating cryptocurrencies.
The G20 leaders signed a declaration to establish a regulatory framework for cryptocurrencies in line with FATF standards.
“We will step up efforts to ensure that the potential benefits of technology in the financial sector can be realized while risks are mitigated. We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards, and we will consider other responses as needed,” read part of the declaration.
Hacks, heists, and crime
According to a report released by security firm CipherTrace, cryptocurrency exchanges and trading platforms lost $927 million through hacks in the first three quarters of the year – a surge of 250 percent compared to the same period in 2017.
In January, hackers made off with $530 million in NEM currency from Japanese cryptocurrency exchange Coincheck. The exchange was sold four months later to Monex Group for $34 million. Another Japanese exchange Zaif lost $60 million in a hack in September.
Nefarious activities have not only been limited to hacks but extend to Ponzi scams, crypto jacking, kidnappings, and outright thefts.
In June, the U.S. Department of Justice (DoJ) announced that it had infiltrated the darknet in a year-long investigation which resulted in 35 arrests and the seizure of weapons, drugs, and more than $20 million in cryptocurrencies.
White hat hackers pocketed $878,000 from bounty programs according to HackerOne, a breach disclosure program. Block.one paid out $534,500, followed by Coinbase at $290,381, and Tron at $76,200.
The demise of ICOs is on the horizon
ICOs were the buzzword of 2017 and their fever made it into 2018 as well. However, an analysis of the ICO market in the third quarter show overall disappointing as figures start to drop.
Blockchain projects raised $3.3 billion from ICOs in Q1 and $8.3 billion in the Q2. In Q3, 597 projects raised over $1.8 billion. The report further indicated that 57 percent of the projects raised $100,000 or less and only 4 percent of the exchanges were listed on exchanges. 19 percent of the projects have shut down their websites and social media accounts.
Only a few projects have raised large sums of money while the majority failed or raised little money. The emerging trend suggests that private blockchains are preferred to public blockchains as bigger players show interest in the space.
The downtrend in ICOs is partly to do with the regulatory crackdown by SEC as the agency presses its foot on ICO projects it deems to be a securities offering. A joint report by Yahoo Finance and Decrypt Media suggest startups that have conducted ICOs may have violated securities laws.
The slow death of ICOs has presented a new reality – Security Token Offering.
Fork wars and infighting within the crypto community
The young crypto space has been trying to block and duck missiles fired by regulatory agencies and critics – but at the same time, it has suffered a great deal from infighting, fork wars, and lack of unity – something that can be expected from a young, evolving, and fast-paced industry.
The Nov. 15 Bitcoin Cash hard fork was as chaotic as forks come and resulted in massive sell-off that caused market prices to tumble.
The two competing networks are Bitcoin ABC (Adjustable Blocksize Cap) is the conservative wing that wants to protect Bitcoin Cash from radical changes. It has support from major companies such as Bitmain, Coinbase, and Binance.
Bitcoin SV (Satoshi Vision) is supported by Craig Wright who has previously claimed that he is the mysterious Satoshi Nakamoto.
Jihan Wu, the co-founder of Bitmain and ally of Bitcoin ABC was quoted as saying,
“I have no intention to start a has war with [Craig Wright], because if I do – by relocating hash power from BTC mining to BCH mining – BTC price will dump below yearly support; it may even [breach] $5,000. But since [Craig Wright] is relentless, I am all in to fight till death!”
Tech giants ban cryptocurrency ads
Some of the world’s major tech giants have banned cryptocurrency ads in early 2018 citing that they were misleading.
Apple banned the submission of cryptocurrency mining apps from its App Store. Microsoft’s search engine, Bing stated in May that it was banning cryptocurrency advertisements on its platform because they presented an ‘elevated risk’ to its users.
Google, the world’s largest search engine announced that it was taking down cryptocurrency advertisements from its platform and caused the price of Bitcoin to tumble 7 percent.
Facebook, the world’s largest social network with more than 2.4 billion worldwide users banned crypto advertisements on its platform only to make several twists and turns down the line. The social media giant later announced that it had revised its policy and crypto firms that met its advertising requirements were whitelisted and allowed to advertise on the platform.
Towards the end of the year, reports emerged that Facebook is planning to launch a stablecoin for the remittance industry in the Indian markets. The users would be able to use WhatsApp messaging app to facilitate the payments.
Rounding off 2018 crypto sector
2018 was an eye-opener and a preview of things to come in the future. The market cap has fallen from $597 billion since the beginning of the year to its current value of $127 billion. The majority of the crypto assets are down more than 50 percent.
The ongoing bear market claimed several heads as many companies closed down, recorded losses, or laid off its staff.
However, during the year, there was a major shift as Wall Street investors crossed the financial bridge to the new asset class. Coinbase is one of the crypto companies that went on a hiring spree in the early parts of the year.
In November, U.S based advisory firm Silvergate Capital filed for an IPO with the New York Stock Exchange. Silvergate Bank, a subsidiary of Silvergate Capital has opened its business doors to cryptocurrency firms. Other crypto firms such as Bitmain, Canaan, and Ebang International had plans to IPO but appear to have shelved them due to the ongoing bear market.
A number of blockchain protocols such as Tezos, Tron, and Ethereum managed to launch their main networks.
Many countries such as Iran and Venezuela have turned to cryptocurrencies to evade sanctions. There are at least 15 countries that are considering or working on issuing their own cryptocurrency.
Bitcoin has been called the mother of all bubbles. Whether true or not, the bubble has burst many times and still lives on. Bitcoin is the digital cat – it has many lives.