2018 Blockchain Year in Review

The New Year is traditionally a time to reflect on the past, and it’s no secret that 2018 has given those of us in the blockchain industry plenty to think about. From wild market swings to significant regulatory actions, the last year brought major changes with far-reaching impact. Let’s take a look back at the 9 biggest global cryptocurrency market developments in 2018.

January Bitcoin Bubble Burst

Bitcoin reached its all-time peak trading price on December 17, 2017, at $20,089. However, just two weeks later, BTC would collapse by over half, finding a bottom of $9,446 on January 17, 2018. The manipulative character of the market enabled traders to inflate the bubble with astonishing speed and to then collapse the price just as quickly, with no underlying fundamental reasons behind the price moves. The January crash went to show that the BTC price could dive quickly, but that the crisis period was relatively short.

Regulatory Engagement

After mostly sitting on the fence in 2017, many global regulators, including the US Securities and Exchange Commission (SEC), began actively engaging with cryptocurrency projects and initial coin offerings (ICOs). The SEC brought cases against numerous cryptocurrency projects throughout the year, starting with AriseBank in January and ending with Paragon and Airfox in November. Financial regulators across the world, the SEC included, announced official positions toward ICOs in 2018.

Crypto-Friendly Jurisdictions

Some places sought to attract startups, talent, and capital by transforming themselves into crypto-friendly hubs. Jurisdictions like Gibraltar, Switzerland, Singapore, and Malta passed legislation that made it easier for blockchain companies to form, raise money, and pay lower taxes on their territory. These steps led to the migration of both established companies and startups to crypto-friendly jurisdictions. Binance’s move to Malta is a case in point. Several regulatory sandboxes also appeared, such as the Hong Kong regulatory sandbox, which allows crypto projects to raise money via security token offering (STO) despite mainland China’s STO ban.

Traditional Capital Jumps In

While 2017 was certainly a year for the retail cryptocurrency investor, many institutional players that had been on the sidelines in 2017 began investing actively into blockchain projects in 2018. Names like Andreessen Horowitz, Venrock, Google Ventures, Sequoia Capital, 500 Startups, Foundation Capital, Goldman Sachs, and others announced tens of millions of dollars of investment into various blockchain projects, including Oasis Labs, Polychain, dYdX, Dapper Labs, UTRUST, and Veem. The entry of institutional players into blockchain is seen by many as a legitimizing force that will increase professionalization of the industry and lead to stable growth.

US Dollar Stablecoins

Another major trend in 2018 was the issuance of dozens of stablecoins, or tokens that are backed by and redeemable for fiat currency. The bulk of stablecoins issued in 2018 were linked to the US dollar, including Tether (USDT), USD Coin (USDC), Gemini Dollar (GUSD), Trust USD (TUSD), and StableUSD (USDS). Stablecoins help increase the overall liquidity for cryptocurrency traders and investors, enabling quick and reliable conversions to fiat. For this reason, many of the world’s biggest exchanges listed cryptocurrency and USD stablecoin trading pairs.

Rise and Fall of ICOs

ICO projects raised colossal sums of money in the first part of 2017, and that trend grew immensely in the first half of 2018, when ICOs raised $11.7 billion, over double the total for the entire previous year. However, ICO fundraising dropped dramatically from $8.3 billion in Q2 to $1.8 billion in Q3 and continued to fall in Q4, with $528 million raised in October and $268 million raised in November. Many factors contributed to the decline in ICO funding, including bearish market conditions, regulatory pressure, high-publicity scams and hacks, and uncertainty from institutional investors. These factors would also inspire the emergence of a new type of fundraising vehicle in 2018 — the STO.

Emergence of STOs

The regulatory uncertainty of ICO fundraising and multiple high-profile ICO scams drove the search for a blockchain fundraising method that protected investors and was fully compliant with regulators. These factors led to the rise of the STO, a type of fundraising method that is fully registered with financial authorities as a security offering and only open to accredited investors. With their promise to bridge the worlds of traditional finance and blockchain, STOs attracted great interest from institutional investors and funds, leading to the development of a robust global STO market.

Second Bitcoin Price Collapse

The entire cryptocurrency market peaked on January 7, 2018, with a market cap of $835 billion and, in the following eleven months, collapsed to just $101 billion on December 15, a loss of nearly 88 percent. Bitcoin found a bottom on December 15, 2018, reaching a low of $3,191. This second price collapse in 2018 resulted in a crisis for many funds, startups, and secondary companies operating in the blockchain space, forcing many to close their doors.

Similarities to the Dotcom Crash

Morgan Stanley’s comparison of Bitcoin to the dotcom bubble points out the similarities of the Bitcoin price to the historical Nasdaq, but the parallels go far deeper. Just like in the late ’90s, when investors poured massive funds into any company with a “dotcom” at the end of its name, many companies saw their stock prices surge after adding the word “blockchain” to their titles at the height of the crypto bubble. In both periods, many startups raised tens of millions of dollars without working products, clear business plans, or even a clear strategy on how to spend that money to generate growth. Naturally, scams and get-rich-quick schemes popped up in both environments to take advantage of the easy money.

Silver Lining

While New Year is a great opportunity to reflect on the past, but we should also take time to think about the year ahead. 2018 may have been quite tough for many, but there is a big reason to be optimistic for 2019. A handful of truly innovative, disruptive, and profitable companies emerged from the ashes of the dotcom bubble. Companies like Cisco, Apple, Oracle, Microsoft, Google, Amazon, and Adobe would go on to lead a market rally and generate trillions of dollars in authentic and organic growth, delivering excellent returns for investors that stuck with them through all the bumps in the road and becoming household names in the process.

Now it’s blockchain’s turn to rise from the ashes and deliver real growth to the world economy. We believe that, just like the dotcom crash, truly innovative companies will emerge from the cryptocurrency crisis stronger than ever and will generate billions of dollars in new wealth.

Survive Workshop

We’re excited to announce that we will be hosting a closed workshop in 2019 dedicated to helping companies and investors in the blockchain space understand the nature of the crisis and build effective growth strategies. Industry leaders and representatives of companies that survived the dotcom crash as well as the 2008 financial crisis will share their own experience in dealing with major downturns and impart valuable tips and tricks on how to emerge from the recession stronger than ever. If you would like to participate, email us at events@smc.capital. Stay tuned for more details!

We hope that our 2018 holiday note will leave you itching to return to your desk this week, armed with a renewed desire to kick butt and take names.

From all of us at SMC Capital, happy holidays and see you next year!

Best regards,

SMC Capital Team

*Our 2018 Holiday Note is meant solely for informational purposes and should not be interpreted as advice about buying or selling securities.