Cryptocurrencies: a review of a breathtaking first half
After almost nothing happening for two or three years, the cryptocurrency market exploded into the public view and imagination of investors in December 2017 with a rally, the weight of which has rarely been seen.
It hit bitcoin first, pushing the world’s biggest cryptocurrency by market cap and volume traded, to an extraordinary high – around $130 short of $20,000 per unit – on 17 December, having been trading at just a tenth of that level six months previously. A rally of 900% in just six months.
A dramatic half
In the ensuing weeks, some made this percentage gain look modest. Stellar’s lumen hit its high of $0.92 on 3 January: its rise from $0.026 six months previously represented a rally of 3,438%.
Then came the slide. While it can hardly be said to be a “bump back down to earth” – most cryptocurrencies maintained healthy gains from their levels six months previously – the market was almost as shocked by the severity of the sell off as it had been about the rally.
So, now we’ve had time to reflect on a dramatic six months for this relatively new asset class, let’s pull together some of the statistics, legislative acts and anecdotes of the first half of 2018.
We’ll look at the following areas:
- Initial coin offerings (ICOs): who raised what, the winners and losers and the scammers
- Cryptocurrency top 10: price moves, partnerships and other events
- Regulatory landscape: securities or not securities? How the biggest crypto-trading nations tackled the crypto legalities
- Characters and anecdotes: a brief examination of some of the comments made on the sector
Initial coin offerings
Even by March, the value of offerings in 2018 had surpassed the $3.9bn total raised in 2017, according to data from ICOBazaar.
This was helped in large part by the $4bn year-long ICO conducted by block.one, the managers of the EOS network. By the end of June the 2018 ICO market had raised $12.1bn.
The number of ICO project launches rose in a similarly staggering way. In 2017 a total of 1,045 ICOs were launched. Again, this total was surpassed by March, and by the end of June a total of 2,350 ICO projects had been launched.
Here, then, are the success stories: in terms of cash raised, block.one/Eos raised the most with $4.1bn, followed by Telegram with $1.7bn, then Petro collected $735m, while Dragon coin grossed $320m and Bankera with $151m.
In terms of return on investment: Ziliqa has returned 1,865.2% in 2018, Alphacat 1,566.9%, Mithril 1,016.2%, Bluzelle 153.2% and Loom Network 141.1%.
According to Coinopsy and Deadcoins, meanwhile, more than 1,000 ICO projects failed so far in 2018 – including scams and abandoned projects.
The rate at which ICOs have grown has driven a commensurately-large increase in incidents of ICO fraud – most notably through coin offerings advertised on scam or clone websites.
A study, published in July was one of very few that have looked into scam ICOs in depth and concluded that between July 2017 and June 2018 nearly 80% of ICOs were scams. The data listed above on the value and number of ICOs identifies only legitimate cash raisings.
The good news is that while the percentage of scams is very high, the cash that fraudsters have got away with was relatively low. That 80% raised only $1.3bn for the scammers in 2017 and 2018, while the 20% that were legitimate ICOs raised $8.3bn.
Meanwhile, as government authorities became uneasier about the quality of ICOs, their attitudes changed, and we’ll look in more detail about this landscape in a later section. But as these changing attitudes led to more severe regualtion of ICOs – even attempts at outright bans – so the landscape of the country origins of ICOs changed.
In 2017, the US accounted for nearly a third of all ICOs with Switzerland a close second with 27%.
By mid-point of 2018, just 10% of cash raised in ICOs came from the US and only 4% from Switzerland, as the unregulated and lax tax regimes of the Cayman Islands and Virgin Islands came into play, with 40% and 21% respectively of the action.
Looking at the total market capitalisation of the cryptocurrency industry tells us all we need to know about the coins that made it to trade successfully on exchanges in the last year.
The market hit its peak during the second week of the year, reaching a total market capitalisation of just over $830bn – up 706% from around $103bn six months prior to its record high.
The subsequent sharp drop and period of volatility continues, yet, if you’d invested in a broad range of cryptocurrencies that existed in late June 2017, by early August 2018 – despite the ups and downs and bellyaches – you’d still have returned a healthy 76% with the market cap now standing at around $200bn.
Given the market declines in cryptocurrencies since January, none of the current top 10 by market capitalisation showed a fist half gain. Some, relatively minor, coins managed gains: the native token of the Binance exchange manage a first-half gain of around 86%, thanks largely to the success of its parent company.
Let’s take a look at the current top 10 cryptocurrencies, their first-half market moves and the stories behind them:
- Bitcoin (BTC): the world’s biggest digital currency by market cap and volume traded fell around 54% from its 2017 year-end close of $13,850 to 2018’s mid point. Exchange hacks took their toll during the first quarter and most recently it’s been the US Securities and Exchange Commission (SEC) declining to approve bitcoin-backed exchange-traded funds (ETFs). In August, the SEC postponed decisions on two other proposed ETFs till the end of September. Fingers crossed for some better news for the second half, then.
- Ethereum (ETH): Ethereum’s blockchain network is one of the most popular choices for hosting initial coin offering launches, an while it may have bought successes for the company, the ether coin has continued to languish after hitting its peak of $1,423 in mid-January. It closed 2017 at $736.77 and has lost around 38% in the first half.
- Ripple (XRP): unfortunately, Ripple hit its peak very early in January, so it’s first-half fall of nearly 77% seems severe, and comes in spite of some fine work from Ripple Labs: MoneyGram integrating XRP into its payments system, a partnership with Japan’s SBI Group, Santander’s OnePayFX using Ripple’s technology.
- Bitcoin cash (BCH): this August 2017 hard fork of bitcoin hit its peak in late December, and closed the year at $2,359 and lost 68% over the next six months.
- Stellar lumen (XLM): Stellar’s lumen coin has had many ups and downs in the first half but ultimately fell 46% from 2017’s close of $0.35. Nevertheless, it has risen when the news has been good – like partnering with IBM on a payments system.
- Eos (EOS): a fine first-half performance, thanks to its late peak – which came in late April alongside news of its impressive $4bn ICO. Subsequent teething problems with the launch of its EOSIO network took some of the shine off in June, but it finished the first half with a 5.6% gain.
- Litecoin (LTC): this early bitcoin spin off had little in the way of news driving events and lost 64% over the first half.
- Cardano (ADA): while the ada token received growing support from a number of exchanges in the first half, when the going got tough, investors sold ada. It started the at $0.71, just off its late-December peak and finished the first half 81% lower.
- Tether (USDT): the stable coin declared to be backed 1-for-1 by US dollars – yet calls from various sources including the SEC for an official audit have been resisted. The currency – pegged as it is to the dollar, ended 2017 at $1 and finished the first half at $1.
- Monero (XMR): scant price-driving news here has left monero vulnerable to profit taking after it hit its peak in late December. From the close of 2017 at $331.83, to mid-2018 it lost just over 60%.
While there have been some dramatic decisions worldwide: China banning ICOs, South Korea mulling an outright crypto ban, and India instructing its banks to withdraw fiat currency support to exchanges, much of the price action has focused on US regulatory decisions.
Primarily, the argument: “Are cryptocurrencies securities, or not?”
The SEC took pains to say “no”. Bitcoin and ether, and other existing tokens are more like commodities, and therefore would not come under its supervision.
ICOs, on the other hand, are like equity raisings – these are securities and must be regulated by the SEC. The landscape is still clouded, and calls for greater regulatory clarity have come from the great and the good, including the US Treasury and the US Chamber of Commerce.
ETFs appear to be the latest regulatory battleground and are likely to have a greater price impact in the second half. The SEC is due to make its next call on bitcoin ETFs in September: its current position is that cryptocurrencies are open to “fraudulent and manipulative acts” and that ETFs would bring too great an exposure to this market for the SEC to adequately protect investors and the public interest.
Characters and anecdotes
Finally, for a bit of fun, let’s look at what some of the well-known characters have been saying. Last year we had Jamie Dimon of JPMorgan Chase declare bitcoin a “fraud”, but this year he’s softened his stance a little.
Here’s what others have been saying in the first half of 2018:
“As industry evolves and adopts new technologies, we also must be cognizant that financial crime evolves right along with it, or indeed sometimes because of it, creating opportunities for criminals and bad actors, including terrorists and rogue states.” – Kenneth A Blanco, director of the US Financial Crimes Enforcement Network (FinCEN)
“Most ICO prices are really just speculation, as most of these ICOs did not deliver much from product side, traction or any other measurable result except marketing efforts.” Marius Rupsys, digital currency trader.
“You’re just hoping the next guy pays more. And you only feel you’ll find the next guy to pay more if he thinks he’s going to find someone that’s going to pay more. You aren’t investing when you do that, you’re speculating.” Warren Buffett, chief executive of Berkshire Hathaway
“I think the fact that within the bitcoin universe an algorithm replaces the functions of [the government] is actually pretty cool. I am a big fan of Bitcoin.” Former Vice President Al Gore
“Cryptocurrencies may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system,” Ben Bernanke, former chair of the US Federal Reserve
“In a few years from now Bitcoin and other digital currency are going to be a normal part of our monetary systems.” Former heavyweight boxing world champion Mike Tyson, who’s promoting his own Bitcoin ATM.
“These is no decentralization, it’s just bullshit. And blockchain is just a glorified Excel spreadsheet.” “Dr Doom” economist and renowned bitcoin hater Nouriel Roubini.