4 ways the 2018 bear market has made cryptocurrency better
2018 has been a great year for cryptocurrencies, laying a very strong foundation for 2019.
A lot of cryptocurrency exchanges entered 2018 with unbridled optimism, and inked expansion plans that would see them hire expansively, take in top talent from the world of traditional finance and handle more and larger trades than ever before.
Then crypto markets fell, and just kept falling.
At the same time a solid dose of regulatory clarity also arrived in the markets this year, the technology got nods from the International Monetary Fund, the World Trade Organisation and at the recent G20 summit, and an extraordinary amount of development has continued behind the scenes.
On the whole, most industry insiders seem to have found the first eleven twelfths of the year to have exceeded their expectations, bearish markets notwithstanding.
Of course the crash hasn't been entirely without downsides – a lot of people lost their shirts – but for the technology and industry as a whole it seems the good far outweighs the bad.
In particular, the market downturn has had at least four clear and positive impacts which might lay the groundwork for an even stronger 2019.
1. Growth in other metrics shows that it's about more than just the price
"The biggest takeaway for 2018 was that development and research continued despite a sustained bear market," says Kee Jeffreys, co-founder and technical lead of Loki Network. "The actual use of cryptocurrencies (global transaction volumes) is on an upward trend despite a significant depression in price. There were significant technological advances throughout 2018, particularly in the privacy space."
"Proponents and detractors alike place enormous weight on market price movements to assert the success or failure of the cryptocurrency movement," notes Ryan Taylor, CEO of Dash Core Group. "By that measure, 2018 was a dramatic failure following an incredible 2017. The market cap of the entire sector is now the same as it was in September of 2017. What is often overlooked is that use continues to grow and innovation remains robust by nearly any measure. Bitcoin's transaction count is now the highest it’s been since January. Dash - the project I support - has seen transaction counts double over the past year even as prices have declined. Silently, speculation is ceding to real-world use."
Bitcoin and other cryptocurrencies still aren't past their mostly-speculative phase, and likely won't be for quite a while. At the same time, the actual growth in metrics other than price makes it clear that the stuff can still stand on real world applications even if prices are yanked out from beneath it.
2. The bubble and burst has really cleaned up the place
2018 also saw a number of drastically bullish price predictions, mostly for bitcoin. But anecdotally it's easy enough to see that the incidence of "$100,000 bitcoin by 2019" style predictions has diminished over the year, and that people are less likely to blindly trust the predictions laid out by cargo cult technical analysis.
The get rich quick vibes also brought out the fraudsters and crooks in droves, which saw regulators and law enforcement step in and straighten things out, and push through some consumer protection measures.
This was much needed. By some measures over 80% of ICOs in the first quarter of 2018 were scams and fewer than 10% ever made it to an exchange, which probably isn't great for the space as a whole.
Falling prices also imparted some tough lessons for the projects which depended on what turned out to be unrealistic growth. Dropping prices have certainly cleaned up the less-efficient cryptocurrency mining outfits, for example, and there are signs suggesting that the tougher margins really are driving miners towards greener, more renewable, pastures for their energy needs.
The falling prices have also highlighted the importance of having an actual business plan, rather than just hoping for crypto magic to come through when needed.
"In 2019, treasury management is going to become a very important aspect of all cryptocurrencies' outlooks," Jeffreys suggests. "Projects that raised at the all time high of the cryptomarkets and did not liquidate into fiat or diversify into stablecoins will now be feeling the pinch as their initial raise will have seen a loss of up to 90% of its initial value. We have already seen prominent projects in the space cut staff, with Steemit having to let go 70% of its employees due to the bear market hitting new lows."
"If the bear market continues, many ICOs will have to face the same reality. It's unclear if this will stifle innovation. Perhaps what ICOs need the most is not money, but the conviction and clear ideologies which often produce the most innovative ideas."
Many of the less useful projects are already ceasing to exist, observes Horizen CEO and co-founder Robert Viglione. And those which aren't just in it for the money might be more willing to use various strategies to keep their work going, or otherwise get creative.
"The dominant pressure will be less stable projects going away until we see a broad market recovery," he says. "This is already happening with smaller projects simply ceasing any development and closing shop. Some big projects are announcing large reductions in personnel and growth activities, so everyone is effected. Consolidation in terms of mergers and acquisitions would be an interesting new dynamic in this industry. Maybe in the next market cycle we’ll have more mature organizations that can use M&A to grow in such a downturn."
3. The downswing encourages fiat connections and more robust fundraising systems
The effects of the bearish lessons might go on to have a positive market impact by highlighting the importance of fiat ties and encouraging more open and robust funding systems. It's much less likely that the self-exacerbating ICO war chest sell-off of 2018 could happen to the same extent in 2019.
Essentially, the lower prices dropped, the more crypto holdings ICO projects had to sell to keep the lights on. This might have had an outsized impact on Ethereum due to its popularity as a platform, and people's tendency to raise huge amounts of Ether in ICOs for ERC20 tokens.
It's unlikely to be repeated in 2019 though. Firstly because of the lessons learned in the bearish market, and secondly because of the rise of security tokens and other fiat fundraising systems, and the decline of ICOs.
"Cryptocurrency's price comeback will be anyone’s guess in 2019, but what is certain is that infrastructure and adoption-wise, 2019 will be an even greater year than 2018. Regardless of the upcoming advent of tokenised securities, I see a promising future for utility tokens. Utility tokens will play an important role in capital raising for censorship-resistant, and distributed applications, with prediction markets and distributed computing being some of the applications already underway," said Raphael Delfin, head of research at Brave New Coin. "2019 is poised to be the year of tokenised securities, meaning that the underlying technology might be the one taking the centre stage next year. However, it would be unwise to leave the first killer app, cryptocurrency, of the underlying technology out of the picture."
4. It promotes quality over quantity
It's also worth noting that the state of the market impacts investors as much as the investors impact the markets, says Roger Lim, founding partner at NEO Global Capital. With things cooling off and slowing down a bit, 2019 likely won't have quite so much FOMO driving investors into hasty decisions. This in turn might raise the bar for projects that want funding and encourage some more serious developments.
"In a bull market, there’s always a greater opportunity for quick wins, so naturally more cryptocurrencies and blockchain-based projects emerged in the market at its peak, with companies and investors acting in fear of missing out. However, the benefit of operating in today's bear market is that, more often than not, projects now come with good intentions and understand the importance of developing compelling use cases, building strong leadership teams, and making continued improvements in order to demonstrate their validity. With competitiveness rising, the blockchain industry is bound to undergo some sort of consolidation and the projects best equipped with a "survival of the fittest" mentality are the most likely to succeed," Lim said.
"From an investment perspective, 2019 will be a promising year for blockchain as projects move away from a "blockchain-for-everything" approach to implementation. We will see a more sophisticated industry emerge across a variety of sectors, including identity solutions, gaming and, financial services, — one that has tremendous potential, both jointly and autonomously, for cryptocurrency and its underlying technology."
Zilliqa CEO Xinshu Dong also has high hopes for a more mature 2019.
"Although I would not promise that 2019 is the year, we will see a wave of widespread use cases in 2019 as organisations looking to implement and develop blockchain applications become more focused. So it is very likely that we will see some compelling use cases emerge," he said. "I envision tokens that bring real value-add for users to lead the charge in 2019."
A good year for crypto
After the enormous price run-up of late 2017, a lot of people were predicting that 2018 would be the year for cryptocurrency and blockchain. And they were absolutely right. And now, that excellent 2018 has gone a long way to blazing a trail for an even stronger 2019.
- FTX reaches a deal to buy BlockFi for up to $240 million
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- Bitcoin’s value jumps up despite fundamentals showing major weakness
- Today’s crypto movers: Bitcoin (↓0.30%), Ethereum (↓0.95%), UNUS SED LEO (↓3.59%) and Amp (↑27.64%)
- Harmony attack brings total lost to crypto bridge hacks past US$1 billion in 2022