Five Trends that will Influence the Crypto Markets in 2019
By Alex Topchishvili on ALTCOIN MAGAZINE
Dabbling in the crypto markets is not for the faint of heart.
What began 10 years ago with a white paper and the Bitcoin Genesis block has evolved into a fully-fledged asset class. Traders, investors, entrepreneurs, and hustlers the world over were drawn to the volatile crypto markets by the explosive growth prospects of the technology. The majority of these individuals just wished to become rich and were smart enough to follow the money (after all, few fortunes are made in mature industries).
After the spectacular collapse of the 2017 ICO bubble and Bitcoin’s all time high of nearly $20k last December, the cryptocurrency and blockchain industry has gone down a rocky road. Bitcoin is down 85% from its December peak, symptomatic of a wider cryptocurrency malaise, where prices are down anywhere between 80–100%.
For the experienced investor, who chose to sit out the ‘hyperbole’ it has proven to be another case of “I told you so.” Yet for those of us in the trenches of this movement, 2018 has been an exciting year on many levels as the market edges its way towards maturity.
Making bold predictions in such a rapidly evolving market is a complex task. It is so easy to be wrong and so hard to be right. Nevertheless, here are 5 broad themes that will exert a measure of influence over the markets in 2019:
1. Trading — Volume increasingly shifts to decentralized exchanges
2. Products — Investment dollars move from protocols to dApps
3. Tokenization — Increased adoption of security tokens for capital creation
4. Venture Capital — Acquisitions lead to market consolidation
5. ICOs — There will be blood
I. Trading — Volume increasingly shifts to decentralized exchanges
Crypto enthusiasts are passionate about creating a parallel financial system that is more inclusive, transparent and equitable than the legacy system existing today.
However, centralized exchanges that allow buyers and sellers to trade cryptocurrencies are hampering the growth of the decentralized financial industry. By providing a single point of failure, these exchanges are attractive targets for hackers and regulators alike. From the infamous Mt. Gox breach that caused the 2014 bear market to the recent slew of hacks including Bithumb, Bitgrail and Coincheck, centralized exchanges have proven to be the weakest link in the crypto chain.
Thankfully, exchanges granting traders control over their funds are coming online with increasing regularity. Decentralized exchanges, such as those built atop the 0x protocol, promise to introduce the trustless, permissionless qualities of blockchains to the trading process. While the most commonly used DEX architecture employs centrally-managed, off-chain order books, traders retain possession of their private keys until a counterparty is found, at which point the trade is executed on-chain.
Traders on IDEX, for instance, do approximately $3 million worth of daily volume. While this still considerably less than centralized behemoths such a Binance, which often exceeds the $1 billion mark, as decentralized exchanges become more intuitive and pleasant to use thanks to platforms like Totle, volume will undoubtedly start to shift towards DEX where traders can enjoy the security of transacting on the blockchain.
II. Products — Investment dollars shift from protocols to dApps
Ethereum was created with the very serious purpose of revolutionizing the financial system with smart contract technology. However, the first real use-case to highlight the viral potential of a decentralized application was the fun, quirky digital collectible game known as CryptoKitties.
Cryptokitties is a blockchain game that lets players collect and breed digital cats. During the raging bull market of December 2017, Cryptokitties caught fire with a 4,833 ETH (more than $2 million) daily volume of novel tokens being traded at the height of the kitty mania. However, with Ethereum capable of a measly 15 transactions per second, investors have preferred funding competing foundational protocols as opposed to Ethereum dApps that are constrained by the network’s low throughput.
Ethereum developers are hard at work on proposals such as Casper, Sharding and Plasma that would increase the transaction capacity of the network, while projects such as EOS and Cardano have launched mainnets in 2018 with the aim of significantly increasing throughput.
As the scalability of dApp platforms begins to improve, investor attention will begin moving up from the infrastructure layer towards the applications that can be built on top of these platforms.
III. Tokenization: Increased adoption of security tokens for capital formation
A quadrillion-dollar market is unfolding, driven by the emergence of security tokens. Combining the power of a distributed ledger with standardized securities will open doors to immense capital creation in 2019.
Unlike utility tokens that aim to decentralize away the risk of regulation, security tokens are fully compliant representations of ownership in traditional asset classes such as real-estate, equities and bonds. The blockchain present a 24/7, transparent and global platform for investors to trade securities of all kinds. Security tokens have a massive addressable market, with the equity and bond markets constituting $70 trillion worth of assets in the US alone.
Investors who are worried about the discrepancy between the high market prices of utility tokens and the value of the utility they provide will be significantly more comfortable buying a token that is backed by real-world, tangible value. Given the transparency involved in a correctly designed security token, there will be entirely new ways to visualize risk and returns. Industry leaders like the Jibrel Network are specializing in providing currencies, equities, commodities and other financial assets as standard ERC-20 tokens on the Ethereum blockchain.
Capital formation may well be the “killer app” of the blockchain and Security Token Offerings may soon see similar levels of enthusiasm exhibited in ICO markets.
IV. Venture Capital — Acquisitions lead to market consolidation
I expect to see more market consolidation in 2019, as both funds and companies struggle to raise capital.
While this might sound gloomy, I think this will be quite healthy for the industry. As technology and valuations converge at rational levels again, the stage will be set for the industry to leave behind its “wild west” image and enter its next phase of maturity.
In the next few months, the established players will help galvanize public adoption. A leaner ecosystem will yield more targeted projects that appeal to businesses and individuals alike. This will likely kill off many of the pump and dump currencies and scam projects. Look for mergers and acquisitions to dominate as the established players solidify their core products and build out their ecosystems (much like enterprise cloud platforms like Salesforce, Microsoft, and Oracle did in the early 2000s).
Blockchain is a grow or die industry. Companies should either prepare to have an exit strategy through acquisition, or have a build, buy, and partner itinerary to continue growing.
V. ICOs — There will be blood
In the U.S., nearly all ICOs would meet the Supreme Court’s ‘Howey Test’ defining an investment contract under securities laws. James Riley’s quote comes to mind…
Of the thousands of ICOs to date, about half have failed, with investors losing billions. A recent EY study reported that through the third quarter of 2018, 86 percent of the top ICOs of 2017 were trading below their listing price and only 13 percent actually have a working product.
On November 16th, two major blockchain projects, Paragon (PRG) and Air Token (AIR) were ordered by the SEC to refund investors from the money raised through their ICO. The SEC has investigated the projects and concluded that their tokens were unregistered securities. Airfox raised $15m and is now down 93% in its token price. Paragon, which raised $12m, now has a total market cap of just under $3m. The significance of this event is that it marks the first time that the SEC is penalizing non-fraudulent ICOs. Up until this point, the SEC had set its target on blatantly fraudulent ICO’s, like Centra, the Floyd Mayweather backed ICO which raised $32million last year and was later determined to have made false claims to lure investors, and was also an unregistered security.
Despite the crackdown, this is by no means a death sentence. Both Paragon and AirFox agreed to register the tokens as securities within 90 days and to pay a substantial fine. By providing this leeway, the SEC has created a model for companies that have previously issued tokens in ICO’s and now seek to comply with federal securities laws. In 2019, we can expect to see a continuation of high ICO failure rates as funding totals shift in favor of Security Token Offerings and regulators providing increased clarity to the market through enforcement cases and private litigation.
About the authors:
Alex Topchishvili is the Founder & CEO of Wemultiply, a growth marketing consulting firm for blockchain businesses. Prior to that, he led product and marketing for multiple venture backed tech companies in blockchain and cannabis, including Totle, PotBotics, and The Blinc Group. Let’s talk.
David Azaraf is a Blockchain Consultant at Wemultiply, a growth marketing consulting firm for blockchain businesses. David brings a data-driven approach to crypto marketing, having previously worked as a data analyst and engineer at eBay and Mayan Capital.
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