How Did We Get Here
A lot of our commentary lately has been analysis of the current bear market. It is important to put the current market snapshot into perspective. After all, it is only a brief moment of fleeting fear, uncertainty and doubt – but why? Why are we going through a bear market right now? What is there to be fearful, uncertain and doubtful of?
To answer these questions, we must look back and observe past behaviour and long term trends to predict potential future outcomes. This time last year, the ICO bubble was in full swing, resulting in a surge in Ethereum dominance. China was the largest player in cryptocurrency markets around the world and both investment and mining were still legal in the country. Cryptocurrency markets had no regulation whatsoever, fewer market makers and participants and low trade volumes coupled with high price volatility.
The advent of Ethereum and smart contracts truly was revolutionary. Privacy coins like Zcash and Monero played pivotal roles in the direction of the markets with technology like zk-snarks. Progress and innovation were happening at a rate not yet seen before in blockchain. The question on everybody’s mind was how do you price this innovation? According to the market the answer was ‘the sky is the limit”. Tokens like NEO and Ripple recorded 10,000% gains in the space of a few months, capturing the attention of traditional investors and the layperson.
External pressures began to mount. China bans cryptocurrency investment, mining and ICOs altogether and the Bitcoin price plummeted. Korea also banned ICOs and smaller countries began to follow suit, banning anything to do with cryptocurrency. Countless headlines and news reports would lambast cryptocurrency daily and talks of regulation in the US began to stir, adding further concerns. As if it wasn’t enough, Jamie Dimon and other high powered banking executives began making sweeping public statements, knocking the legitimacy of cryptocurrencies.
Internal pressures were mounting too. Frequent hacks, ICO scams and Ponzi schemes plagued the cryptocurrency environment. The question of scalability was asked time and time again – many commentators were saying it would be the death of cryptocurrency. The legitimacy of stablecoins like Tether also came into question with fears that a collapse could take the entire cryptocurrency market with it. Manipulation was rampant and there seemed to be nothing that could stop it. Enterprise adoption of cryptocurrency was doubtful and heavily criticised as price stability could not be achieved.
The internal and external pressures were mounting and many thought that cryptocurrency would be crushed. Bitcoin has been declared dead more than 300 times already. There is however, a massive amount of intellectual capital working in cryptocurrency and blockchain. These are professional problem solvers and solve problems is exactly what they did. Let’s go through the list mentioned above.
- Cryptocurrency investment, mining and ICOs get banned: This problem was easily solved. The nature of blockchain and cryptocurrency is that it is decentralised. Simply banning it can do very little to spurn the growth and progress of the industry. This was seen when China tried to ban it – the hashing power, mining operations, investment and ICO teams simply moved overseas. Other countries that banned Cryptocurrencies saw that they were missing out on a high growth industry that contributed to national economic growth – these countries quickly changed their tune. Korea banned and then unbanned both cryptocurrency investment and ICOs and now is one of the largest markets. They now even have a reality TV show based on Bitcoin.
- High profile individuals decry Bitcoin is a farce: Jamie Dimon, Barack Obama, Jordan Belfort and Warren Buffett are a few who make up the list of people who have said Bitcoin is worthless or even harmful. They have all been proven wrong either in their simple misunderstanding of what Bitcoin is and how it works. The sweeping statements they made used to swing the market but these days they have no effect at all. It is a case of the boy who cried wolf one too many times; nobody cares what they have to say any more. **
- US regulation was virtually non-existent and punters were worried that Bitcoin would not have a place in the US economy. There was also the fear that Bitcoin could get regulated out of existence. As with any bureaucracy, progress moves at a snail’s pace, but progress is progress none the less. We are currently witnessing the regulatory framework being constructed by the SEC to make cryptocurrency safe, fair and accessible to all, from whale institutions to the minnow ‘mom and pop’ investors. Actions speak louder than words and the assembly of this regulatory framework speaks volumes about the confidence US lawmakers have in the future of Bitcoin and cryptocurrency. Lawmakers are spending too much tax payer time and money to regulate cryptocurrency just to let this budding industry fail. This will be looked back on as a defining moment in the history of the blockchain industry.
- Exchange hacks were common and shook the whole market regularly. Today they are now a rare occurrence and when they do occur, the market price does not react. The stolen funds are often recovered and the guilty parties brought to justice. One exchange that leads by example is Binance. Last quarter, Binance recorded a profit north of $200m, more than Deutsche Bank. Binance has the most robust matching engine and security system which quickly made it the go-to exchange for altcoin trading. A vulnerability in the Binance API was exploited however, it was thwarted within an hour, the funds were returned and the culprits caught. This exchange leads by example and proves that the cryptocurrency community can look after itself.
- ICO scams, hacks and Ponzi schemes simply no longer occur. Those bad actors of the past felt the long hard sting of the law and this serves as a warning to any who consider operating nefariously. One example that springs to mind is Bitconnect. The perpetrators of that Ponzi scheme are currently being trialled.
- Scalability was a big problem. Bitcoin transaction fees were extremely high and ICO events would cripple the Ethereum blockchain. Bitcoin then rolled out the lightning network and transaction fees have since never been lower and times never faster. Bitcoin is growing and is becoming a legitimate threat to Visa and MasterCard. Ethereum developed plasma and sharding, improvements that could see the Ethereum TPS dwarf the Visa TPS of 56,000. This new technology was also embraced by other smart contract platforms like NEO.
- There were fears that Tether was not backed by US dollars and that it was being used to artificially inflate the Bitcoin price. These fears have since been put to bed and in fact we now have several stable coins to choose from.
- Market manipulation was squeezing out the small investors and there were seemingly no consequences for this illegal market behaviour, until now. There is an ongoing market manipulation probe in the US that will weed out the bad actors taking advantage of small retail investors. This will likely impact negatively on the Bitcoin price in the short term but will build a solid foundation for Bitcoin resulting in long term price growth.
- Many people argue that cryptocurrencies are too volatile to be used as currency. Dual token platforms like NEO and NEOGAS and VEN and VECHAIN THOR have a solution to this problem. You have NEO or VEN which have price volatility. These coins exist in a proof of stake system and simply holding them earns you NEOGAS or VECHAIN THOR which are coins with low price volatility intended to be used as currency. This relationship encourages enterprises that use these blockchain networks to buy NEO or VEN to generate the stable transaction tokens used to power their business transactions. This technology is currently being tested by an impressive list of Vechain partners including BMW DNV GL.
Bitcoin and cryptocurrencies have come a long way and the progress and innovation shows no sign of stopping. Although we are currently in a bear market one cannot forget why we were drawn here – the revolutionary technology. It is sometimes beneficial to consider blockchain and cryptocurrencies as two separate identities. Cryptocurrencies are the markets in which blockchain technology is priced and traded. There are several weaknesses currently being corrected in these markets but as the old saying goes, Rome was not built in a day.
The underlying strength of blockchain technology is still there and with each passing day it gets stronger with innovation and progress. We at CIM are both market traders and believers in the tech. Even though we are bearish on the price of Bitcoin in the short run it in no way means we are not bullish on the tech long run. We do not let a weak market translate into a weak mind; we are in this for the long term gains. Stay informed, stay relaxed and ride this revolution to the moon with us.