The start of 2018 hasn’t been the most exciting time for crypto space. The overall market value has dropped from above $800 billion to somewhere around $300 billion at the moment. A lot of crypto newcomers who spent no time shoving their money into cryptocurrencies are struggling to keep hodling. Sometimes they break into full-blown panic-fuelled rages online. Whether we’re currently in a market correction, a consolidation, or a bubble burst, one thing is clear: the industry is adapting. Here’s how that adaption process is likely to play out over the rest of the year:
1. Global policy-makers will take a cautious approach
Following the meteoric rise of crypto-related awareness towards the end of 2017, local governments and international institutions started taking a closer look at the new big thing in tech and finance.
At first, there was a lot of skepticism, with plenty of influential people rejecting the whole crypto movement as speculation, fraud, or a bubble. One of the most well-known examples was Jamie Dimon, CEO of JPMorgan, who called Bitcoin a fraud last fall. It caused a lot of turmoil within the community as many other unresearched claims about cryptocurrencies circulated.
Now, the melody seems to be changing. More and more governments are creating taskforces to investigate and study potential applications of blockchain technology. Some of them are considering issuing their own digital currencies. Even Dimon himself back-pedaled in January, saying he regrets making negative remarks about Bitcoin but still remains cautious about it.
The U.S. Senate held a much-anticipated hearing in February during which the chairmen of the SEC and CFTC testified about Bitcoin and digital currencies. Surprisingly, the testimony was rather bullish. CFTC’s C. Giancarlo said: “‘Do no harm’ was unquestionably the right approach to the development of the Internet. Similarly, I believe that ‘do no harm’ is the right overarching approach for distributed ledger technology.”
And just a few days ago, when world leaders met in Argentina for the G20 summit, cryptocurrencies were on the agenda. There were some calls for crypto regulations, but the Financial Stability Board, backed by numerous delegations, put its foot down, saying more monitoring is needed before drafting any kind of regulation.
Plainly put, global leaders have taken a closer look at the underlying distributed ledger technology and realize they need to do more research before taking action. The current course is to proceed with a do-no-harm approach, and that’s a good thing.
2. We’ll see a drop in scam ICOs
The landscape of initial coin offerings (ICOs) has been evolving rapidly. The market surged in the second half of last year, with ICOs pulling in over $4.5 billion. However, this gold rush had some adverse effects on the market. Con artists and other opportunists seized the moment to take advantage of unsophisticated investors.
This year started out with a swift rate of ICOs. According to Suicide Ventures, a staggering of 260 public token sales were launched in the first two months (that’s more than four per day!), and roughly 40 percent of them raised at least 50 percent of their hard cap.
But the reverse side of those statistics are pretty alarming: In February 48 percent of ICOs drew in 10 percent or less than their announced hard cap. And the 10 biggest projects only raised 46 percent of their cap. Crypto startups now need significant resources to stand out in the sea of mediocre projects fighting for community attention. Having a template-based landing page is not enough anymore.
Investors are doing due diligence, trying to separate the wheat from the chaff, and this has resulted in the lower ICO success rate. People are more protective of their money and are looking to invest in projects that provide constant updates and have a Minimal Viable Product and a proof-of-concept to showcase.
The good news in this trend is that we’re seeing era of ICO scams coming to an end.
3. Crypto-promoters will experiment with new strategies
While regulators are proceding slowly on providing legislation, social media and internet titans are taking measures to avoid any culpability in promoting crypto scams. Facebook, Instagram, Google, Twitter, and LinkedIn are all now blocking crypto-related advertising. Google is the only one to gave the industry some breathing room to readjust before limiting traffic, announcing the change would happen in June. And when Twitter — the last of the group to ban crypto ads — made its move, that triggered a further downturn in the crypto market, bringing it back under $300 billion.
The end result of these moves is hard to estimate, but they are going to make it increasingly hard for new projects to build communities and get traction in order to launch an ICO. Projects will have to be more creative in finding ways to grab public attention, and we should see decentralized forums such as Reddit, BitcoinTalk, and blockchain-oriented discussion boards gaining popularity as a result.
The bottom line
These are hard times for cryptocurrency projects and ICOs. Prices are falling, and the internet giants are limiting crypto-related traffic and advertising in an attempt to protect consumers. Meanwhile governments are only starting to take an in-depth look at the wonder of blockchain tech. Cryptocurrencies tried to breakout and hit mass adoption in the second half of 2017, but neither the public nor the tech was ready. That led to bears taking over the bulls.
The current pessimism could hold through the remaining three quarters of the year, or we could see the bulls make a comeback. It’s hard to predict. What we can be pretty sure about is that this will be the year in which regulators get a better grip on how to approach crypto and in which crypto projects need to be a lot stronger and more innovative to get off the ground.
Natan Avidan is CEO of Orca Alliance, an EU-based open banking platform for cryptocurrency users.