2017 would definitely be remembered as the year of Bitcoin and cryptocurrencies. Cryptocurrencies became a household name as people rushed to make investments, taken over by the fear of missing out. And before anyone knew, there were billions of dollars riding on it as the market cap of cryptocurrecies crossed $ 500 billion. From a humble $ 800 value mark in the beginning of 2017, Bitcoin touched a gigantic $ 20,000 mark. Though Bitcoin has been the leader, other cryptocurrenciess like Litecoin, Ethereum, Ripple also caught on the imagination of the investors. There are over 1400 cryptocurrencies that exist, and the number keeps changing as some new ones are born and some old ones die every day.
The adrenalin rush surrounding cryptocurrencies soon started to fade out as the reality struck the market. The crypto market was awash with scams, ponzi schemes and security breaches. Millions of dollars of investor wealth have been wiped off as the crypto exchanges and wallets suffered serious security breaches. One of the earliest hack happened in 2014 as the then biggest crypto exchange Mt. Gox got compromised and lost $ 460 million of the investor money. Unfortunately, things haven’t changed much since then as there have been many high-profile hacks and it still continues to be major threat.
Enthusiasts and investors need to watch out not just for the hackers but for the scammers too. The very start-ups that they believe in and invest through their Initial Coin Offerings (ICO) turn out to be frauds on many occasions. ICO has become the favorite route for funding the blockchain based projects as it saves the pain of going through the rigorous Venture Capitalists routine. ICOs have in fact raised over $ 5 billion, way more than the amount of VC funding that has gone into blockchain. Naive investors who support projects in the initial stages through ICO have been cheated more than once. There have been ICO scams like My Big Coin, Prodeum, Confido, Plexcoin and the list goes on.
Cryptocurrency has often been referred to as “digital gold rush” by many and rightly so. Many of the early investors became overnight millionaires and billionaires as the prices of cryptocurrencies soared. While cryptocurrencies may have given birth to a new breed of crypto geek millionaires, what followed it is not as glamorous. The fluctuating prices of cryptocurrencies creates and wipes wealth in just moments. The boom that we saw in 2017 has gone downhill and 2018 has begun on a very sour note for crypto investors. Bitcoin which boasted about touching $ 20,000 mark in December 2017 was as low as $ 6,914 on Feb 6, 2018. All other cryptocurrencies have followed the same trend including Ethereum, Ripple, Zcash, Tron etc.
Extremely fluctuating cryptocurrencies have often raised questions about the purpose they really serve. Are they really meant to be used as an alternative currency to the political federal currency or are they just meant for speculative trading to make (or lose) quick money.
Cryptocurrency under scanner
Regulators and governments didn’t pay much heed to the cryptocurrency market in the beginning, may be because they expected it to be a passing fad or maybe they didn’t understand it at all. Whatever the reason was, it wasn’t the best choice and they have realised it now. The growing popularity of the cryptocurrencies despite the rising scams and out of control fluctuations has got them working overtime. China and South Korea have already banned ICOs and other countries are also looking at actively regulating them. Recently, Indian finance minister said, “The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system”.
The story of cryptocurrencies has so far been full of drama, excitement and controversies. Million dollar question (literally!) is whether cryptocurrencies will survive all the scams, bans and confusion, to create a non-political currency system which was once promised by Satoshi Nakamoto as he invented Bitcoin in 2008? It is difficult to answer whether cryptocurrency will become a popular “currency” but I feel 2018 will be about these 3 things as far as cryptocurrencies are concerned.
1. Regulations, Regulations, Regulations
While in 2017, most of the governments and regulators were passive observers of the cryptocurrency market, 2018 is not going to be the same. Equipped with full understanding of the technology and specialized task forces, regulators have started taking a stance on cryptocurrencies and guess what, it doesn’t look like a welcoming one. Not one or two but most of the countries are looking at cryptocurrency as some kind of speculative bubble and a way of funding illegitimate activities.
Most of the countries have indicated that they wish to bring cryptocurrency under regulations in order to clamp down on activities like money laundering, funding of terrorist organizations, tax evasion, illicit drug and sex trade. They are also taking actions to define cryptocurrencies and tax structures around it. Many governments have refused to acknowledge it as a currency, for example, it has been classed as a commodity in the USA market, thus bringing it under the purview of the Commodity Futures Trading Commission.
While there is no 100% clarity on the stance of various regulators regarding cryptocurrencies, it can be said that the level of caution varies from country to country. Some countries like Switzerland and Canada have welcomed it, others like the USA, Japan, Russia seem to be largely undecided as to which direction they would be taking. Of course, some others like China, India, South Korea have made it clear that they are against anything to do with cryptocurrencies.
Initial coin offerings (ICO) deserve a special mention as they have been the biggest pain point for the regulators. Billions of dollars have been raised in over 200 ICOs so far, but unfortunately a lot of these ICOs have been scams to mint investors’ money. Regulators everywhere have issued warnings to the investors to be extremely careful before putting money in any of the ICOs. It has almost become a trend where in the founders come up with an exciting blockchain based project idea and show a fancy plan to the enthusiastic supporters. Supporters, who don’t have many avenues to check the authenticity, often fall for it and end up losing their money to the fraudsters who vanish with all that money. Regulators have been cracking down on such ICOs and their founders, many of them being behind bars right now. Very recently in December 2017, Securities and Exchange Commission, USA cracked down on the founders of Plexcoin, accusing them of fraudulently raising $ 15 million through token sale in their ICO.
Market capitalization of cryptocurrencies may have been the highlight of 2017, the limelight in 2018 will be stolen by the regulators. I believe that their decisions will be the biggest factor in deciding the future of cryptocurrencies and to some extent in the future of blockchain technology too. The regulators will not only target ICOs and their founders but also the individual investors, in order to restrict trading of cryptocurrencies. Small investors might get scared off by the fear of coming under the scrutiny of the regulators like IRS for taxation related issues concerning cryptocurrencies.
Many blockchain projects which were started just to ride the cryptocurrency wave, lack strong fundamentals and infrastructure required by a nascent technology. The truth is that even the most unrealistic and insubstantial projects got funded because of the hype around ICOs in 2017 but that doesn’t make them stable companies who can survive the rough times ahead. If you think about it, even a meme-inspired cryptocurrency, the Dogecoin had a very successful ICO and crossed a market cap of $ 1 billion. There has been a crazy frenzy to come out with a blockchain projects and their corresponding cryptocurrencies. What is the surprising part is, that they all got funded and that too in huge numbers.
I feel that a lot of these cryptocurrencies will disappear in 2018 as they will either run out of funding or hit a major technological roadblock. What will dominate market are the cryptocurrencies with strong infrastructure and technical support. Cryptocurrencies are an application of the blockchain technology, which is in a budding stage. For cryptocurrencies to become more secure and robust, a lot of work needs to be put into improvising on the blockchain technology. The likes of Bitcoin, Ethereum and Ripple will rule the market as they have a huge support system and a developer community which is ready to put in that effort to take blockchain from nascent to maturity stage.
In 2018, we can expect consolidation in the cryptocurrency market as the market matures. While Bitcoin has been on a freefall since the beginning of 2018, it will get stabilised and probably even regain its lost value. Though, I truly believe that 2018 will belong to Ethereum because of the its solid offering in terms of the platform for decentralized app developments and smart contracts. More and more developers will use Ethereum Virtual Machine (EVM) to quickly build blockchain projects for applications across industries like healthcare, supply chain, Internet of Things (IoT) etc. Ethereum also seems to be more promising with regards to overcoming the slow speed of executing transactions, which is currently one of the biggest challenge being faced by Bitcoin’s blockchain.
3. A wild ride with the institutions joining in
Love it or hate it but you cannot ignore the cryptocurrency phenomenon. In addition to the enthusiasts and individuals, it is also expected that the institutional investors will explore this space. The crypto phenomenon is far from over as it is just beginning to attract interest from big investors. With the likes CME Group Inc. and Chicago Board Options Exchange (Cboe) launching Bitcoin futures, the game is expected to heat up. Institutional investors have so far stayed away from crypto market, but they seem to be warming up to it.
The wild cryptocurrency ride may not be as wild as 2017 but it is here to stay and woo enthusiasts and investors alike. No doubt that there will be more sanity involved with the regulators keeping a strict watch, but it’s future is anyone’s guess.