The Steep Fall Down the Crypto Escarpment: Can It Make a Comeback or Not?

With bitcoin currently down to $3,500 from a high of $20,000 less than 14 months ago, is the crypto experiment coming to an end? What’s been going on behind the negative headlines since the beginning of 2018?

The heady days of the crypto riche showing off their new Lambos and a different cryptocurrency shooting to the moon every other day may be over but it’s worth looking at the goings on in the blockchain space over the last year to find out whether the end is nigh or we’re just taking a breather.

Even into early December 2018 Tom Lee, Managing Partner and Head of Research at Fundstrat Global Advisors, predicted that bitcoin would end the year at $15,000, but of course that didn’t happen. He wasn’t the only one who was disappointed, and HODLers around the world have had their patience tested to the full. And while there’s plenty of doom and gloom around, it seems there’s also plenty to be hopeful about, as the crypto space is licking its wounds, picking itself up and preparing for the next wave of excitement.

The bull run in 2017 came too soon for the industry. Structurally it simply wasn’t ready to handle the rush and the hype. Tens of thousands of people were signing up for accounts on exchanges daily, the Bitcoin and Ethereum blockchains were stretched to capacity resulting in greatly reduced transaction speeds but greatly increased costs, and people were pumping money like crazy into altcoins that had no operational infrastructure behind them yet. Exchanges couldn’t cope and as a result slow and unstable trading became an intensely frustrating experience. I remember trying to place orders, which either didn’t go through, or even worse, I didn’t know if they’d been accepted or not, often resulting in me placing the order again only to end up having both orders accepted…or none. It was chaotic!

Looking back, it comes as no surprise that the bubble burst when it did and in the long run this is actually a good thing. Call it a practice run, if you like. We found out what the weaknesses were in the existing systems and with the relative quiet from the beginning of 2018 the exchanges and blockchain organisations were able to use some of their huge profits from 2017 to improve their infrastructure. At least that’s what the more serious ones did. So let’s take a look at some of the movers and shakers to find out how far they’ve come.

Starting with the exchanges and their developments. Binance has emerged as the solid number one in terms of size and services on offer. Their trading platform has become more stable and user-friendly, for example, by adding the option to use Trading View’s graphs instead of Binance’s own rather crude graphs and launching decent trading platform apps - I use the app on Apple and it works very well. They also ventured into Africa with Binance Uganda, made a link to fiat currencies for the first time by setting up an operation in Jersey, and have recently started offering credit card purchases of crypto. All this was going on while also moving their operation from China to Malta to avoid the tightening restrictions by the Chinese government. Kraken, one of the other large crypto exchanges, has also greatly enhanced the efficacy of its systems and has just started the option of futures trading, after a $100 million takeover of a British futures company, becoming the first exchange to do so.

Additionally, many ICO projects continued unabated with their development and we started seeing more of them go live, the most high profile of these were the blockchain protocols of EOS and TRON. Both launched within a few days of each other at the end of May/early June, with impressive transaction numbers since then: currently 5-6 million per day for EOS and about half that number of transactions for TRON. But many other new blockchain protocols for supporting decentralised applications (dApps) also either launched or progressed with their development.

Governments and Wall Street companies have also started looking at digital currencies for the first time, which shows that they now realise that this is not merely a fad, but a serious phenomenon, which is likely only going to grow. Just this week JP Morgan announced that they are jumping on the bandwagon planning to launch their own cryptocurrency to help with international bank transfers, although it’s likely to be centralised and highly controlled and therefore not a true crypto currency in its purest ethos.

Related to the traditional financial companies, several have stated that there is an interest in crypto exchange traded funds (ETFs), which would bring cryptocurrencies to a wider audience. One has been launched in Switzerland by Amun (it’s actually classified as an ETP - exchange traded product - but the only difference between that and an ETF is that an ETP is not subject to a certain act), but it is in the US where real traction can be gained. Several proposals have been submitted to the Securities and Exchanges Commission (SEC) but so far none have been approved, mainly due to an unstable market which can be easily manipulated, which they’re right about.

This brings us to the negative elements holding the crypto world back. Let’s stay with the SEC and US regulators in general; the state of New York introduced very heavy restrictions which has somewhat strangled the sector. Some other states also have tight procedures and this has led to firms either moving out of the US or not innovating until the situation is cleared up. There was hope that an ETF would be approved in 2018 that might kickstart the market but that didn’t happen and it remains to be seen whether it’ll even happen in 2019.

Hacks on exchanges are still commonplace with tens of millions of dollars worth being stolen in 2018/early 2019. Among the latest are hacks of Cryptopia’s exchange where around $16 million of ETH and ERC-20 crypto tokens were stolen. Currently hitting the headlines is the bizarre case of Gerald Cotten, CEO of Canadian crypto exchange QuadrigaCX, who apparently died in India in December, having not left the private keys to their cold storage wallets with anyone and $136 million of cryptocurrencies seemingly trapped out of reach. Every day we are hearing more suspicious stories of how he updated his will just before his death, or how just last week coins were transferred “by accident” to the cold wallets, which of course are now not accessible. Basically, there are still too many bad actors in the space and some exchanges are not taking the necessary precautions to protect their customers’ funds.

Adoption still hasn’t taken off in the way people had hoped at the end of 2017 and this is a crucial area to improve on if the crypto space is to reach its potential. The few dApps that are running are only used by a handful of people. As of writing, the top dApps are mostly gambling and gaming. The no.1 dApp, Play GOC running on the TRON network, had just over 7,000 users in a 24-hour period with a total transaction volume of only $51,000, which is rather paltry.

Part of the reason for the low adoption rate could be due to the delays in launches and updates. The most high profile of these being Ethereum, which had planned to bring in its Constantinople upgrade in January, only to cancel it just 2 days before the launch after discovering a serious bug. Apparently all is well for a second attempt in the last week of February. Ethereum’s blockchain is far behind EOS and TRON in terms of speed and capacity. But then the world is also waiting for Ethereum to develop the Casper, Plasma and Sharding implementations, which together will increase the scalability of the system.

This article highlights just a few of the highs and lows in the crypto space since January 2018. In conclusion, for sure there are still hurdles to overcome but as the space matures (and it still needs time for that), the potential for this technology to change how we deal with transactions and data remains immense. HODL on!

About the author
Paul Whitaker first got into learning how the stock market works and then discovered cryptocurrencies mid-2017 when he was looking for something more exciting. What started as a get-rich-quick scheme rapidly turned into genuine enthusiasm for blockchain technology and how it can transform society. He now spends vast amounts of his spare time trying to keep up to date with all the developments going on in the space.