THIS WAS OUR 2018 TREND FORECAST: Crypto growth in 2018 will ignite from three arenas: customized innovations by nations creating their own crypto currencies; the evolution of new technologies, making it easier to trade digital currencies; and launches of crypto futures trading exchanges such as Cboe Global Market’s Futures Exchange, the Chicago Mercantile Exchange, Nasdaq, etc. But as trading intensifies, so too will market swings.
MID-YEAR UPDATE: In making our 2018 forecast, while we anticipated substantial volatility as governments increasingly imposed bans, regulations and controls on trading crypto assets, and set new limits on initial coin offerings (ICOs), we underestimated the extent of government intervention.
And considering the sharp spikes in prices across the crypto landscape in 2017, coupled with regulatory pressures and hacks into exchanges, the foundation for a bear market sector correction was well established for cryptos.
As we have emphasized in our Trends In The News broadcasts and Trends Monthly, regulatory action or even the threat of it, are primary factors for the decline of over 53 percent in combined market cap valuation of the top 50 largest cryptocurrencies since the end of 2017.
For example, in January when South Korea, the world’s third largest cryptos market announced it planned to ban cryptocurrency trading, Bitcoin and other major cryptos experienced record-setting single-day, double-digit declines in value.
In the weeks that followed, however, South Korea clarified its position. Rather than banning crypto exchanges, it opted to regulate them, now maintaining four exchanges, which temporarily stabilized markets.
Another factor that we had not anticipated last year was the vulnerability of crypto exchanges to hackers.
The hackability of major exchanges is what has also driven crypto values down.
In early June 2018, Bitcoin, Ripple, Ethereum and other major digital currencies fell as much as 10 percent on the news that South Korea’s Coinrail Exchange had been hacked. Coinrail said that its system was hit by “cyber intrusion,” causing losses for about 30 percent of the coins traded on that exchange.
Less than two weeks later, the major cryptos lost 3 percent of their total value on the news that another South Korean cryptocurrency exchange, Bithumb, temporarily suspended services after $30 million worth of cryptocurrency was stolen by cyber hackers.
Following these hacking incidents, major crypto exchanges in South Korea vowed to voluntarily comply with the country’s Anti-Money Laundering Laws that apply to banking and other more traditional financial institutions.
In June, Bitcoin fell 9 percent to $6,081, its lowest level since February, on the news that Japan’s financial regulator ordered several cryptocurrency exchanges to improve their practices against money laundering.
The South Korean and Japan examples are among many that reflect the sensitivity cryptocurrency markets have to news, hacks, rumors or speculations that affect the security and value of digital currencies.
In fact, uncertainty over what is legitimate or illegitimate cryptocurrency trading prompted the world’s dominant social media and digital networks to levy an across-the-board ban on cryptocurrency advertising.
In March, Google, Twitter and Facebook, all under pressure to become more accountable to their users and to better regulate content, imposed a blanket ban on cryptos, making no attempt to distinguish between accepted, legitimate cryptos and those that haven’t yet established credibility.
The move was widely criticized by the digital currency community and beyond, but nonetheless contributed to market downturns in the sector.
However, in late June, Facebook announced a partial reversal of its earlier decision saying it would allow some crypto advertising pending a review process but would continue to ban advertising for ICOs.
GROWING NUMBER OF REGULATORY TARGETS
In another 2018 development challenging cryptocurrencies, the Bank for International Settlements (BIS) issued a warning, stating that the worldwide mining of cryptocurrencies, especially Bitcoin, could crash the Internet.
It said that cryptocurrency scaling could “bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.”
In the U.S., concentrated crypto-mining in rural, small town areas, from upstate New York to Oregon, have resulted in power surges, damaged public utility equipment and even sporadic blackouts.
Some municipalities have been forced to impose moratoriums on cryptocurrency mining until their impacts can be more thoroughly evaluated.
The BIS report concluded: “Individual facilities operated by miners can host computing power equivalent to that of millions of personal computers.”
And the concern is reaching across desktop computers to mobile devices. Apple has imposed new restrictions for how cryptocurrencies are mined on iPhones and iPads, over concerns that cryptocurrency mining could drain batteries on mobile devices. Apple’s new guidelines state: “Apps may not mine for cryptocurrencies unless the processing is performed off device… Apps, including any third party advertisements displayed within them, may not run unrelated background processes, such as cryptocurrency mining.”
As this issue becomes more prevalent, reflecting yet another area of crypto vulnerability, another avenue for cryptocurrency oversight opens up.
UNCERTAINTY, FEAR TRIGGER LOSSES
The Trends Journal forecast that the crypto market began the year poised for a correction. But then, the steady drumbeat of regulatory news and rumors amplified the volatility, triggering sustained downward pressure on currency values.
In May 2018, for example, there were 24 digital currencies with market caps greater than $1 billion, compared to 27 at the end of April. Of the 24, all but one closed the month lower than where it had started.
The sharp declines this year have reinforced and emboldened the position of longstanding critics of crypto assets, such as JPMorgan Chase Chairman Jamie Dimon, who called Bitcoin “a fraud”, and Berkshire Hathaway Chairman Warren Buffet, who told his shareholders that the leading cryptocurrency is “probably rat poison, squared.”
Another major element that has recently pushed cryptos lower, but which was essentially ignored by the media, is a trend we were among the first to identify.
We warned that cryptos would react with high volatility as digital currencies were permitted to be traded across traditional futures exchanges, including the Cboe Global Market’s Futures Exchange and the Chicago Mercantile Exchange (CME).
On Dec. 17, 2017, the CME introduced Bitcoin futures trading. That day, the digital currency was at its peak, $19,783 per unit. Since trading on that platform began, Bitcoin immediately and consistently lost value, falling to the $6,000 range per unit this June.
Even the U.S. Federal Reserve Bank’s San Francisco Division, confirming our earlier trend forecast, said in a report issued in May that the launch of Bitcoin futures last December played a major role in triggering its subsequent slump in value.
THE MONEY GAME
What Dimon, Buffet and other high-profile critics of cryptocurrencies continually sidestep is the Globalnomic® perspective.
And as we have forecast, cryptocurrency’s growth, despite a turbulent path to legitimacy, is inevitable. It is a key dynamic of the 21st century’s financial revolution, and the evolution of the high-tech world that was unimaginable in the 20th century.
Trends are born, they grow, mature, reach old age and die. Cryptos are still in their infancy. Thus, how fast they grow and what they will look like when they grow up cannot yet be fully determined.
And, anyone claiming to be an “expert” in the field is no more than a participant in its evolution, since tracking trends is an understanding of where we are and how we got here, determining where we are going. And the “how we got here” phase has no true history yet, since it is being shaped right now.
What is being shaped, and what will sustain and help escalate crypto growth is that in this techno era, more nations will go cashless. And, cash is not part of the new world order for millennials and the generations to follow. Cryptos are a high finance reflection of the acceptance of cashlessness.
Also, a key dynamic behind the birth of Bitcoin for example, is the millennial core distrust of fiat currencies. For them, digital currencies are what gold was for baby boomers: Their version of a safe haven asset.
ACCENTUATE THE POSITIVES
The new reality of crypto acceptance is slowly, but steadily being embraced in a positive way by government regulators, who are taking measures to stabilize, protect and legitimize digital currencies across the globe.
Among these measures are crackdowns on crypto investment scams, especially against ICOs. It is important to note that these latest rounds of regulations are not adverse to the major cryptocurrencies themselves, or to the legitimate exchanges that trade them.
Indeed, the “crackdown” on trading has already resulted in several positive initiatives to help investors identify fraudulent ICO practices and invest wisely.
The U.S. Securities and Exchange Commission’s Howey Coins website, for example, demonstrates what illegal investment schemes look like, and the North American Securities Administrators Association’s Operation Crypto Sweep profiles dozens of possible scam models.
These initiatives are helping to transition cryptocurrencies to be governed by standard regulations, which will enable them to be traded in secure and legitimate exchanges.
FOLLOW THE MONEY
Indeed, developments so far this year are clearly showing that most governments are not trying to eliminate cryptocurrency, only regulate them.
Investment in the digital currency world is actually broadening and increasing, and making inroads into top investment firms. In fact, one the members in the establishment currency club, Lloyd Blankfein, CEO of Goldman Sachs recently declared, “Bitcoin is not for me, but it’s too arrogant to say it won’t have a future.”
Putting its money where Blankfein’s mouth is, Goldman Sachs has created a division a division to carve out its space the global cryptocurrency market.
Other money-mega U.S. firms, such as Fidelity Investment are following the Goldman path, while U.S. based Susquehanna International Group has formed an active Bitcoin trading desk to augment its traditional stocks, options and ETFs trading divisions.
And Jump Trading, a Chicago-based firm, has built an OTC platform for electronic bitcoin trading.
Moreover, a recent Reuters survey of major financial institutions worldwide found that one in five are planning to trade cryptocurrencies as part of normal business practices within the next 12 months.
Following this legitimacy trend, Indonesia’s Future Exchange Supervisory Board (Bappebti) announced it will allow digital currency trading on futures exchanges as a commodity.
And in Switzerland, the country’s financial regulators are expected to lift barriers to traditional banking services for cryptocurrency businesses, which will provide a level playing field for crypto businesses to share with traditional enterprises.
Finally, on the investment front, venture capitalists who poured $964 million into blockchain or cryptocurrency-related startups in 2017, have already invested $1.4 billion into crypto development through May of 2018.