2017 treated cryptocurrency investors and enthusiasts extremely well, with impressive growth and adoption in the space, which has elevated the legitimacy of cryptocurrencies and blockchain significantly.
So far, 2018 has seen a period of steady decline from an overall market cap of 850 billion (USD) after December’s massive run-up. However, because the foundations are arguably stronger than ever, there is no reason to lose faith.
To better analyze the current market situation and evaluate the accordance of my current positions, I decided to partially document it and write down some personal thoughts and prospects that I see playing out in 2018. Keep in mind that these are my own conclusions based on the information that I analyzed, and therefore should not be taken factually, or as investment advice, but rather as something to ponder about.
Paradigm Shift in Cryptocurrency Investing
Institutions and Investment Services
The present year will probably see various changes in the crypto space in terms of the inflow of capital into the markets. It would be naive to believe institutional money is not already involved, but there are still key roles to be played in 2018, especially regarding the gateway purposes financial institutions could serve. We can possibly expect to see new ways for people to invest through mutual funds, hedge funds, or even pension funds, and therefore have various institutional services offered for cryptocurrency investing.
In 2017, we already saw some speculation of an ETF (which didn’t come to fruition), and the introduction of Bitcoin futures from CME Group and CBOE. Regardless, 2017 was still a year of massive skepticism from institutions, but with surging interest and demand, it would make sense for them to capitalize on this market growth in one way or the other.
With this in mind, Bitcoin will probably still continue to grow, as market demand will increase by Bitcoin acting as the gateway to the space (a phenomenon predicted to decline towards the end of the year – see alt-coins and exchanges sections). Furthermore, with major players in the traditional investment space, such as Goldman Sachs and JP Morgan, as well as other institutions, learning more about cryptocurrencies, 2018 could see massive institutional entry into the market.
Another big shift in the foundations of investing might be a move towards value investing. For a long time, many have treated this as a game with no downside, being increasingly greedy and thinking nothing bad will happen to their funds. Truth is, everyone thinks nothing will happen until it happens, and when it does, it is a major tragedy.
With an increasing number of exit scams and project shutdowns, exchange hacks/insolvencies/bugs, scammy ICOs etc., more and more people are getting burned. This can provide reason to believe that over time, we can see more value-driven investing, where people might give their allocations a second thought and also evaluate potential downsides more seriously. There are also a lot of people who have been left holding the bag after being shilled without doing any personal research themselves.
After getting burned on trading or manipulation, we could expect to see a lot more people holding solid projects, or even holding due to passive revenue reasons (PoS, PoW, etc.). This is where we could see volatility decrease due to value/foundations-driven investing, while a lot of projects unable to deliver will lose credibility and likely pull exit scams. This snowball effect will spiral more and more, ultimately leading towards increased value investing as the hype market slowly fades.
We will probably also see a lot of projects fail in 2018, and another bunch being pushed aside due to lack of use cases and adoption. When this happens, partnerships, utility, and use-case oriented projects will be highlighted, as solid, working products and clear demonstration of demand will shine.
Therefore, 2018 could also be the year of adoption, where established projects with good fundamentals will continue to rally due to the adoption news or speculation, while smaller projects will have to fight for survival and highlight.
Furthermore, we have seen a lot of projects that could function as efficiently without the tokens, but since ICOs introduced an easy access to global crowdfunding, projects began to force tokens where they weren’t necessary. Truth is, a project can be the best out there from a technical standpoint, with significant demand and real-life use-cases, but none of this matters if the token is not really used or required.
With every market, there is a blind hype phase where people make money from the initial craze and influx of unaware investors. However, we have seen less and less massive pumps and an increasing amount of ICOs being dumped upon exchange listings – a reason to believe we are slowly entering a new phase.
Another element to consider here is that more legitimate projects are increasingly getting more trading pairs (including fiat) on various exchanges, which will make it easier for people to invest in them. Bigger projects with an established ecosystem will also have the most coverage and backlinks created online, which can create more exposure and interest towards them, and sustain their dominance in the space.
Scalability and Innovation
2018 can also be expected to be a big year in terms of scalability. Cryptocurrency and blockchain real-world application and feasibility relies on the technology scaling properly in order to facilitate global transaction volumes for everyday transactions and business use. While there is certainly global access to anyone, increased number of transactions can lead to long transaction times and a clog in the network (due to the limited number of transactions per second). This is a major limitation which is currently holding back blockchain and cryptocurrencies.
There have already been a lot of discussion around Bitcoin and Ethereum scalability, especially around the topics of Lightning Network, Casper, Sharding, and Plasma, as well as new blockchains that claim to fix all scalability issues. With the introduction of emerging technologies and revolutionary ideas in the space, we might even see various projects changing platforms more suitable for their needs (scaling-wise).
One thing is for sure – we definitely will not solve scalability by the end of this year, but we can certainly expect there to be a lot of focus on it, as well as setting the foundations in place to have good scalability possibilities in the future. Blockchain has already seen major interest in the business ecosystem, with increased demand due to its efficient and cost-saving functions. Really, the primary element stopping its widespread use are issues related to scalability.
With the increasing interest in blockchain technology, we have already seen various major partnerships announced, as well as powerhouse companies like IBM and Samsung working on their own solutions. Additionally, we also already have a whole country’s healthcare and digital infrastructure system running on blockchain technology (Estonia), which supports its efficiency and demand.
In 2018, we can probably expect a lot more big companies either utilizing current blockchain solutions through partnerships and side-chain launches, or creating their own blockchain solutions instead. Having said that, this is where platform-like projects might grab the spotlight, as crypto economies that support high value business ventures are going to have a lot of demand – as has been proven by Ethereum’s EEA already.
Furthermore, platforms like NEO and Waltonchain have also secured a lot of major partnerships, with an increasing amount of ICOs or side-chains running on their economy. These ecosystems should experience a similar growth trajectory with adoption, and will probably see the highest value gain in 2018, especially with massive companies using the tech and incentivized node-running through PoS, PoW, and dBFT.
Based on this belief, we can expect blockchains to demonstrate direct value by solving various business problems, alleviating operation inefficiencies, and increasing the effectiveness of value-exchange to become the forerunners in the space. There are several industries that have a lot to gain from adopting blockchain technology, some more than others: supply chain, settlement layers between inter-currency transactions, payment processing, offloading processing tasks onto blockchains, identity management, etc.
This is why we might see projects like ICX, WTC, VEN, NEO, XLM, and some other enterprise-oriented projects creating viable use-cases, to be the focus over the present year of business adoption. The list of use-cases for such multifunctional platforms is rapidly expanding, while also facilitating the growth of a massive ecosystem of partnerships, individual developers, community contributors, news headlines, etc.
This type of news saturation might make it hard for smaller projects to receive attention, as the speculation phase of “what could be the next thing” is slowly fading, with more evident winners starting to emerge.
Hacks, Scams, Security, and the Need for Decentralized Exchanges
I think it is safe to assume that the popularity of cryptocurrency exchanges and altcoins will also increase. However, due to the lack of awareness regarding safe storage solution, people are exposed to various security threats.
Everyone is talking about cryptocurrencies and their gains, but that often overshadows the important discussion of how to safely store funds. Exchanges are the gateway, but rarely do they incentivize people to offload their funds onto cold storage after buying them, and as new, naive money continues to pump into the market, the risks will increase.
We’ve already seen various exchange and/or storage-related issues surface, which have caused widespread panic in the space. NiceHash, CoinDash, Parity, E-BTC, Bitgrail, Coincheck (to name a few) were all storage-related issues that caused people to lose a lot of money.
I expect that with the growing demand in the market and irresponsible personal security, hacks/scams will not be something we will be free from in 2018. Furthermore, we will probably see various exchanges suffer from problems due to their diverting their attention to scaling to facilitate the growing numbers, which could potentially expose weaknesses in their security.
All of the issues we will potentially live through will, however, probably increase the awareness and need for decentralized exchanges, and I truly believe a common consensus will essentially move towards that path. In such marketplace, projects like Request Network, OmiseGO, 0x, as well as some upcoming decentralized platforms without a central point of failure, will see massive growth. With increasing security risks to exchanges and an abundance of horror stories, there are abundant premises for a foundational shift in how people manage their money.
All in all, we are guaranteed to see more exploits and hacks in 2018, with malicious agents finding ways to empty the pockets of multiple investors. To be more secure, I would advise anyone reading this article to get a cryptocurrency hardware wallet (such as Trezor or Nano S), which will be future proof not only in security, but also probably in DEX trading.
The Year of “Altcoins”
The market cap of altcoins was only 2 billion in the beginning of 2017, growing to a staggering 370 billion by the end of the year. With the wider understanding of what blockchain can do, we were introduced to various projects that wanted to take a bite from the massively growing industry. Investing became about more than just Bitcoin, and we saw a huge market growth for various altcoins.
In 2018, I see that trend continuing, but with a more value-driven investing, as mentioned before. We have also seen the various underlying problems with Bitcoin, and people are on the hunt for the “next big thing.” Nano (XRB) displayed how much excitement a new solution can bring, but it unfortunately suffered a recent setback with Bitgrail. Overall I see more and more exciting cryptocurrencies erupting like that.
Another factor to consider in 2018 is the prominent rise of “dividend” coins, which will follow the value investing premises. Passive revenue can be something to latch onto, even in the downward markets, since when the market picks up again, your coins will keep appreciating over time (as you don’t get paid in fiat amounts, but altcoin amounts).
Therefore, short-term movements don’t really affect payouts so long as the long-term growth is sustainable. In such philosophy, projects such as NEO, ARK, OmiseGO, WTC, etc. will be in the spotlight. I expect to see a lot more projects also following this dividend payment model.
I also believe that altcoins will continue to outgrow Bitcoin, due to the nature of human psychology. We get so easily spoiled in this market that the Bitcoin gateway that used to serve us well will not sustain our greed anymore. People will get bored when they’re not doubling their money every month, and they will chase bigger gains in the altcoin markets.
With the combination of dying belief in Bitcoin, as well as some really prominent world-changing projects, dividend-based altcoins with proven partnerships and use-cases may see a parabolic run up, as people become addicted to bigger and bigger gains. Furthermore, with more altcoin pair-offs coming up, this is just the inevitable outcome in the current market, especially when Bitcoin is no longer dictating the entire market due to increased liquidity in altcoins.
The present year also stands to be a year of regulations, with multiple countries either creating or fortifying their stance regarding cryptocurrencies. Regulation is inevitable when moving forward, and it shouldn’t be considered as overly negative.
First and foremost, if it doesn’t compromise cryptos entirely, it just adds to their legitimacy as an asset class. We have also witnessed that regulations don’t move markets that much anymore, and we’ve also seen a lot of hopeful developments in that area.
Recoveries are quite fast, since even governments and big corporations have begun to acknowledge cryptocurrencies and blockchain as the next step in the evolution of money – they are here to stay. However, this doesn’t mean that 2018 won’t be a year of regulatory reckoning – we will certainly see a lot of laws and regulations developed towards this newly formed asset class.
A reason to stay positive is that cryptocurrencies are decentralized and distributed, and while government actions can certainly hurt their prices in the short term, it will be extremely hard to shut them down. Cryptocurrencies seem to be quite resilient to laws trying to undermine them, so people shouldn’t be too overly concerned about regulations.
Governments will soon realize that this will be a race in technology adoption, where the more blockchain-friendly countries will get more money moving into their economy, and that it would be an extreme hindrance for a country to decide to ban the next breakthrough – potentially comparable to banning the Internet itself.
The Battle of Exchanges
Exchanges have seen massive growth due to the increasing popularity of cryptocurrencies, which will probably introduce competition between exchanges to lure in new customers. With every exchange, there are problems and reasons why they aren’t chosen over some other, and similar to how we saw Poloniex lose a lot of business to Bittrex, and Bittrex to Binance, we might see similar scenarios playing out when competition promotes innovation and change. Therefore, I believe we will see a significant race for faster, cheaper transactions, ease of conversions and trading pairs, user interfaces, customer support, new trading elements, decentralization, etc.
Another interesting thing to consider is how exchanges will deal with hyper-growth and scaling problems, as a pretty frustrating trend throughout 2017 was how exchanges struggled to facilitate increased customer numbers and needs. This was also evident from Coinbase, Binance, and Bittrex temporarily halting registrations of new users due to their inability to deal with surging user bases, as it led to server accommodation constraints.
2018 will probably also introduce a lot of fiat pairs as well, since unfortunately, right now there are only 3 real gateway exchanges to cryptocurrencies through fiat – Coinbase, Gemini, and Kraken. Keep in mind that this is another issue exchanges have to deal with in terms of scaling, as it is extremely difficult to get licenses and integrate that into global banking infrastructures. This is an area where competition is good and will probably push the speed of adoption.
Furthermore, there are so many exchanges currently not serving global needs, and even Binance, which is arguably the most global, has received increasing criticism for outdated fees and nonexistence of fiat pairs (even lack of altcoin pairs, for that matter). Despite the criticism, it is still currently the most used one, as Chinese/Korean exchanges haven’t facilitated Westerners at all, and certain exchanges are simply unusable in various regions.
Also, some exchanges are halted from listing various coins that are deemed to be securities (like Bittrex), as well as other issues related to global expansion. Therefore, competition will probably also expand to areas of serving global needs without restrictions, and the exchanges to accomplish that first will most likely see a large spike in customer numbers.
Overall, I truly believe 2018 to be a year where projects have to step up and differentiate themselves, being required to demonstrate a real use-case and value of the token in the ecosystem for sustained growth. This is exactly why I personally believe that platforms and enterprise-orientated projects will see a lot of growth, especially when investors are incentivized with passive revenue to sustain the health of the network.
A lot of pump coins with no value will probably perish, and things will be put in perspective for a lot of hype investors. Keep in mind that this is just an opinion of a researcher in the space, not a guarantee of what will happen in 2018. I encourage everyone to share their own opinion on this subject and comment on what you see happening in the present year.