For sake of fun and games, let’s imagine crypto is a planet, similar to ours, alive and of fractal nature — a single large organism (decentralised ledger technology — DLT), made up of similar smaller individual parts (protocols and applications) and integrated into a similarly structured bigger context (real world application).
Now let’s look at what happened in the last quarter of 2017, in a very abstract way.
Individual organisms grew so rapid and unsustainable, they became cancerous. Continuously devoured themselves, each other or any other thing passing by for a meet & greet, only to become bigger and better at devouring. Soon there was almost nothing left to devour and the ones left, face to face with the total annihilation of their entire existence, finally decided to start creating objects that could feed them.
There are as many theories as there are minds to distinguish why and how this rapid growth emerged.
Not looking at greed and “lack of self responsibility or absence of appropriate behaviour” over there, just moving on to here and now. Let’s take a look at what the state of the crypto world is in, in the post ICO spacetime, in order to best prepare for the shape of things to come.
Current state of
Markets
Trading volume and market cap on central exchanges (public markets) have been at an all time low.
For anyone having come in contact or watched the Over The Counter (OTC) markets, it’s very clear to see a lot of institutional and heavy family funds flowing into crypto assets, bitcoin primarily.
This is either to hedge against economic uncertainties, diversify into other crypto assets (due to still largely unavailable fiat to token gateways) or prepare to become market makers and prepare positions for the next bull cycle. No matter which one of the before mentioned is correct, they all spell higher volumes and caps for crypto assets in the years to come.
Spreading fear, uncertainty and despair (commonly referred to as FUD) is a common tool to keep growth of certain assets or overall market (usually by targeting bitcoin) in check and should be inspected constantly and diligently by market participants for authenticity and motivation. Especially in countries with obscure political structures like Russia or India, the FUD campaigns, against a technology that could help create more transparent system of governance, have been peaking.
The general uncertainty, currently felt by many legislations trying to regulate crypto assets and their applications, is another parameter that needs to be factored in when assessing the status quo of crypto markets. Until the handful of brave legislators, who are working together with decentralised ledger projects, will deliver the first successful implementations of applications into the real world, the markets will most likely not recover.
However Switzerland, Malta, Liechtenstein are pioneering the legal crypto landscape, more on that later on.
Many smaller EU countries like Bulgaria are waiting for a clear route from the European Union, some eastern European states are taking matters into their own hands, spear headed by Czech Republic, Hungary and Romania as being relateively crypto friendly, sometimes due to them asking for large license fees.
“The fact that cryptocurrencies are rather commodities also shapes our light-touch, liberal approach to regulation at the CNB. We do not want to ban them and we are not hindering their development”
- Mr Mojmír Hampl, Vice Governor of the Czech National Bank
The next game changer and volume catalyst, from my point of view, will be security tokens and security token exchanges.
Being ready when those assets hit the markets is of utmost importance.
Exchanges
The Securities Exchange Commission (SEC) from the US is cracking down on companies that executed (unregulated) ICOs and exchanges offering trading of unregulated tokens.
Some financial institutions followed suit, like in Korea or Malaysia. Japan forced all exchange operators to cease operations until they would be regulated under Japanese law, which Huobi just recently did.
Many accusations also revolved around wash trading, front running of order books and other market manipulation techniques up to censoring or banning accounts. All remnants of intransparent, centralised financial institutions. In general a decentralised exchange (DEX) is primed to tackle said issues, however the current DEX solutions (being a transitional product) are ailed to some extent by similar issues since they rely on off-chain order-books (0x Protocol) or a gateway structure to exchange assets (bitshares). True DEX functionality and liquidity will arrive once the atomic swap functionality can be used across all protocols.
Binance, who set up shop in Malta last year are working diligently together with the Malta Stock Exchange to create a proper Security Token Exchange (STE), similarly Gibraltar has been aiming to launch their security token exchange late 2018 — which hasn’t happened yet.
Coinbase poised itself to establish a STE in the US, by acquiring three companies in order to become a full brokerage. Swiss and London stock exchanges are working together with local financial regulators and advisor companies to gear up for the trading of security tokens.
The general trajectory becomes more clear and points to a brighter, less scam riddled and more transparent future. A future with more and better performing exchanges and services.
Miners
Some mining companies recently had to close down shop or downsize substantially, since they couldn’t break even with the recent price drops in bitcoin. Additionally the switch of the Ethereum protocol to PoS (Proof of Stake) forces mining ventures to re evaluate and re structure their business model, leaving some to leverage accumulated assets to become PoS Validators while others are switching to other PoW (Proof of Work) assets, that are better suited for their localised venture. However it is currently extremely difficult to do projected calculations that would show a positive ROI, since the markets have been in a very bearish mood.
Mining pools are becoming more important as specialised mining hardware (ASIC) — previously researched and designed, as well as distributed by large mining hardware companies — is commoditised, respectively becoming more widely available at a more affordable rate.
Development of new liquid cooling technology, that allow mining rigs to run in any room, without the need for air cooling or conditioning, is running hot. This will have a huge impact on the decentralisation of PoW mining hardware, since it alleviates most of the pressure on electricity costs. In addition some proper PoW protocols (e.g. Monero) are changing the hashing algorithm regularly, to make it more difficult for large mining facilities to snack up all the hashing power with their army of unified hardware, tailored to process just one algorithm. Hence it allows smaller and more flexible individual miners to fill the gap, by adapting to the new algorithm faster than large operations with hierarchical structures.
The mining landscape is currently being redesigned and certainly is somehow “responsible” for the low volatility and volume expressed in the markets recently. As soon as the land is fertile again, it can be expected that high volumes will return and volatility will increase.
The question is what traders will be prepared to profit first and which ones will trail behind?
Legal Landscapes
By now, most legislators have had a first brush with crypto assets. Whereas some decided on a no tolerance policy, others are trying to approach this new class of assets with a somewhat open mind, then again a few are even embracing it.
A constantly increasing number of exchanges and projects around the world, that executed ICOs without adhering to the regulations of the respective financial authorities, are being prosecuted since a couple of months. What follows is a waking up to a damp reality, after a cozy slumber filled with dreams of instant disempowerment of the current financial apparatus.
Malta, Switzerland and Liechtenstein are the avant-garde when it comes to drawing up crypto friendly and inclusive legislations or enabling DLT focused companies. However being passively antagonised by the local banks, for they fear loosing their EU sponsored licenses if they take crypto affine actions.
Similar to Silicon Valley in California, to where tech companies were lured with huge incentives, Crypto Valley was founded 2017 in Zug, Switzerland. Malta has created a set of laws allowing DLT projects to have a legal base and be regulated by the Malta Digital Innovation Authority (MDIA). The set of laws were passed in 2018 and the first test phase with the iGaming industry accepting crypto currencies as payments, launched just recently.
Japan and the US are taking a much more conservative approach and using existing frameworks and legislations to regulate the new assets, at least until they’ll get around to sketch new ones…
Meanwhile
As smart legislations are now starting to create new structures for crypto assets, so will smart traders ready their tools and prepare strategies, in order to be prosperous.
The shape of things to come
Bridges are being built and lines are being drawn, we are in a transition state from a system close to collapse into one that promises transparency and stability. To what extend these promises are kept is up to us, how do we apply this new technology to what means? Are we using it to build an opposition, in order to fight against something or are we using it to build a composition, in order to shape a sustainable future we can enjoy together and not alone.
This is also why proper automated trading is a precursor for more healthy markets. What great destruction emotions and irrationality can produce while trading or when engaging with financial markets in general, was evident during December 2017. From cab driver to hairdresser — each and everyone wanted to buy bitcoin, they’ve read “I’ll get rich if I buy it before it goes to 100k”. The sentiment was evident and echoed in the news, simple for the experienced trader to acknowledge, but hard to measure and very difficult to link his trading signals or algorithms to it.
Now there is a tool to do exactly this, while maintaining 24/7 uptime, thus allowing you to focus on real world issues or making your loved ones happy. While at the same time allowing sustainable markets to grow organically. Enter OCTORACLE
This was the first introduction and kick-off post to our new humble marketing campaign.
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