Before we begin our case for whether cryptocurrencies will recover (or not), it’s important to note that the long-term fundamentals for bitcoin (the king of all cryptos) has not changed at all since 2017 when prices first began its descent downwards. In fact, we’ve seen Bitcoin improve and become even more resilient:
- Layer-2 solutions like Lightning Network have been implemented
- Challenges due to the Bitcoin hard fork have dissipated
- Developer activities, building tools, and institutional interests have increased
Aside from these events, we also saw some major recent developments coming from the US and internationally that signify a looming crypto bull market.
1. Signs of institutional Interest
Last year, the second-largest endowment in higher education, Yale Univeristy, invested in a digital assets fund which raised $400 million. The fund, Paradigm, was started by Coinbase co-founder Fred Ehrsam.
Mike Novogratz says Yale entering the crypto market is huge because “where[ever] they go, people follow.”
Fidelity Custody Solutions
Digital coins are constantly stolen, underscoring the need for better safeguards. Fidelity is hoping to leverage its famous name and win over institutional customers keen on digital currency trading.
Key features include managing cryptographic keys for customers, staving off hackers and staying within compliance boundaries.
BAKKT is a digital assets exchange backed by the NYSE and ICE (Intercontinental Exchange). It is a proposed scalable platform where institutional, merchant, and consumer clients can participate in digital asset investments The goal is to offer Bitcoin mutual funds, pension funds, and ETFs.
As a highly reputable financial organization, ICE has secured partnerships from multinational companies such as Microsoft and Starbucks.
The exchange, which is expected to launch later in 2019, is considered as a ‘turnkey moment’ which will open the doors to a raft of new institutional investment.
On February 12 2019, Morgan Creek Digital announced a new $40 million crypto venture fund anchored by two public pensions in Fairfax county, Virginia.
Anthony Pompliano from Morgan Creek Capital tweeted: “The institutions aren’t coming. They’re already here.”
2. Stablecoin Adoption
Stablecoins have been gaining traction throughout 2018, and the momentum has continued forward in 2019. Stablecoins are great for inter-exchange liquidity–a very important aspect of the crypto market that has been lacking throughout this prolonged bear market. Another thing stablecoins will do for the market is attract global organizations to enter the crypto markets without the fear of volatility that the markets have shown over the past year.
Centralized stablecoins like Tether, Paxos, Circle and USD-C have gained some traction in 2018 but has failed to become the “holy grail” solution for market volatility. After failing to provide an independent audit report, the price of Tether dipped to US$0.90 in October 2018 and investors questioned whether it is fully backed by US dollars.
DAI’s “Stable” Performance
One of the most successful stablecoins out there is MakerDAO’s DAI. DAI is a fully collateralized stablecoin pegged to Ethereum which has held its ground very well despite Ethereum falling about 90% over the last 12 months. MAKER’s token is powering a lot of today’s decentralized applications that are gaining traction in the markets.
3. International Currencies Looking Into Cryptos
Longtail national currencies like Venezuela have shown immense interest in cryptocurrencies.
On February 11, 2019, Venezuela effectively announced fees and limits on local crypto remittances, and documented taxation laws related to the sending and receiving of cryptocurrencies. Venezuela is setting a precedent for other longtail national currencies to follow.
On February 20, 2019, Argentina and Paraguay used bitcoin to settle a payment transaction for an export deal between the countries. Paraguay paid an estimated amount of $7,100 worth of Bitcoins to complete this transaction. The Bitcoin payment became instantly converted into Argentine pesos through Bitex, a financial service provider supporting Bitcoin payment.
If we aggregate the bottom 100 currencies, they have all been looking into cryptocurrencies as a new form of money. There is a huge opportunity for these lesser known currencies to band together and relinquish themselves from a currency pegged to the USD. And instead use a currency like Bitcoin, or a derivative of Bitcoin for financial transactions.
4. Government Involvement in Cryptos
Throughout 2018, there has been talk but no real movement over crypto regulations. This was one of the key drivers that experts were looking for to evaluate how serious governments were about cryptocurrencies and their involvement in the economy and financial transactions around the world. The process has taken longer than expected since Bitcoin doesn’t fit cleanly into any regulatory structures. Just as Uber has fought with the taxi cartel and Airbnb fought with nearly every city in the world over hotel laws.
Positivity from the SEC
SEC Commissioner, Hester Peirce, voiced her opinion on the current delays in defining a legal framework for crypto, saying that ambiguity in laws might not be a bad thing:
“We might be able to draw clearer lines once we see more blockchain projects mature. Delay in drawing clear lines may actually allow more freedom for the technology to come into its own.”
Regulators Watching Patiently
Currently, the SEC, CFDC, and IRS are all trying to regulate cryptocurrencies and set precedents that will protect individual investors but also allow for good actors to innovate and compete in the market. This process may take longer than expected, but rest assure government organizations are watching the markets closely.
It’s hard to say when and how exactly the market will rebound. Will it be this year or 2 years from now? Will it be a slow grind upwards or a quick launch towards new record highs? Will it be Bitcoin or some other emerging coin? Nobody, not even the so-called crypto experts, knows. One thing is for certain: all the dominos are lining up for another major bull run for the crypto market to occur. This time around, institutions will have front row seats.
“B2B reporter – Content Manager – Contributor – Fintech – Blockchain – Cryptocurrency”
Simon Chou is a B2B reporter and content manager specializing in technology and finance. He has worked with many clients in the fintech and blockchain space. He holds investment positions in bitcoin and other large-cap cryptocurrencies, and has been reporting on cryptocurrency since 2017. Currently, Simon is the content manager for a major cryptocurrency exchange @HybridBlockHQ.