By Mary Ann Callahan
The price charts at crypto websites have reflected a strong downwards trajectory for most of 2018. Is cryptocurrency dead? Is the market just taking a breather? Let’s look at what is going on in terms of fundamentals and sentimentals.
Market needs to let off steam
After a meteoric 2017, it was only natural that the crypto market would need to cool down a little. Nothing goes straight up indefinitely!
Much of the price appreciation experienced at the end of last year was caused by a media-fueled, retail-investor speculative frenzy. Think about it. At the start of last November, the price of a single Bitcoin was around $7,300. Just a month and a half later, the price was over $19,000. Meanwhile, altcoins such as Ether and countless others experienced even larger percentage gains. These are not the hallmarks of a rational market.
Of course, there were fundamental factors that drove the formation of the end-of-year bubble. The successful activation of SegWit – a network upgrade intended to help Bitcoin scale – and the subsequent Bitcoin Cash hard fork seemingly providing a resolution to the ongoing scaling debate drove much of the early market optimism in the summer of 2017.
Meanwhile, the initial coin offering phenomena encouraged a hugely speculative environment around the whole space. With early examples such as Ethereum itself proving massively profitable for pioneer investors, a slew of companies with many dubious ideas (and some good ones) promised to sell literally anyone company tokens for established cryptocurrencies in entirely unregulated sales. Companies raised hundreds of millions of dollars and some traders undoubtedly made a bundle on the wildly volatile markets.
These two factors came to a head around this time last year. Driven by mainstream media coverage of the massive gains of early Bitcoin, altcoin, and ICO investors, an influx of largely uninformed retail investors piled into the market. Many had little idea of what they were buying, and a massive case of “FOMO” (fear of missing out) occurred.
Fundamentals are strong
Recently, the volatility of Bitcoin and other cryptocurrencies has dropped immensely. Many commentators believe that the market has found its bottom. Although it is impossible to say for sure when it will reverse, there are certainly plenty of developments on the horizon that are bullish for the industry and, by extension, the prices of the leading crypto assets.
One of the biggest news events of this year is undoubtedly the Bakkt platform. Due for launch in mid-December, the announcement of trading venue, custodial solution, and payments facilitator is particularly exciting because it is being launched by the owner of the New York Stock Exchange, the Intercontinental Exchange (ICE). Other big names associated with the venture are Microsoft, Starbucks, and the Boston Consulting Group. Such large prestigious names are exactly the kind that the planet’s largest investment firms trust enough to take a new asset class seriously.
In a similar ilk to the Bakkt launch is a cryptocurrency endeavour from another of the planet’s biggest names in investments. Fidelity Investments manages more than $2.1 trillion in assets. It’s also more than a little interested in digital currencies. This October, the company announced the launch of Fidelity Digital Assets – a custody, trading, and general 24-hour, white-glove service for the planet’s wealthiest investors to get into the crypto market.
Not only has Fidelity Investments been working towards launching their own cryptocurrency infrastructure services for the most sophisticated class of investor, but the multinational money management firm has also mined digital assets for over three years now.
Much of the cryptocurrency narrative of 2018 has been about a Bitcoin Exchange-Traded Fund in the US. The green-lighting of the highly-lauded ETF is thought to be useful in providing an additional nod from one of the most powerful financial regulators on the planet. The SEC has been taking their time in approving the first venue for the potential crypto derivative. However, many in the space believe that the ETF is coming early next year when the deadline for the most anticipated fund proposal draws near.
Other custody and trading desk solutions
If all that wasn’t enough, there have been many other firms also offering their own institutional-level packages to the market all year. These range from trading desks for massive money managers to take up positions in the space to custody solutions so that they can be assured of the safest storage possible for their funds. The likes of Coinbase, Circle, Blockchain, and Goldman Sachs are all in the process of releasing, or have just released, such services to the market.
The sheer number of tailored institutional buying and storing options coming highlights a massive demand for cryptocurrency from established money managers.
Of course, it’s not all about institutional interest in leading cryptocurrencies. The biggest digital asset of all is currently undergoing something of an upgrade. The Lightning Network has already been launched for Bitcoin and some of the world’s most accomplished developers are currently putting the software through its paces for bugs and exploring what is possible with the innovation. Eventually, the plan is to allow a cheap, fast, and confidential payment rail on top of the Bitcoin base network. This will further increase the functionality of the original crypto and will allow a host of new use cases involving micropayments.
Dapps gaining traction
After a shaky start for most decentralized applications built on the Ethereum blockchain and other smart contract platforms, it seems that some projects are finally starting to take off. Take the decentralized prediction market that is Augur. There was almost a $1 million bet on the US mid-term election result!
If more applications can prove their utility, it will show that platforms such as Ethereum can see a massive adoption across industries.
Ultimately, it is impossible to say when the cryptocurrency market will turn around. That said, the fundamentals of the space are good, but the retail market is still licking its wounds from the mania last year. Meanwhile, institutions will likely take up positions using the many tailored services coming to the market. Once a couple more big names get linked to Bitcoin and others, the industry might shift gears.
About the Author: Mary Ann Callahan
As an expert on Bitcoin-related topics, I’ve found myself as a Journalist at Cex.io – cryptocurrency exchange. I’m working on articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.