As has become the norm in its recent history, the cryptocurrency industry has once again failed to stop generating headlines in 2019. From the meteoric price growth that defined the first two quarters of 2019, the announcement of the entry of social media giant Facebook into the industry, to the launch of the first ever cryptocurrency settled derivatives, the year has been packed full of developments that are taking the industry more and more mainstream. This is my take on the year in crypto.
To the Moon?
For several years now, it has felt like the community rallying call “to the moon” had lost a certain ring as Bitcoin, and the wider cryptocurrency market, seemingly struggled to recover from the post-2017 price correction, leading a vast swathe of the community to disinterest (and perhaps dismay). However, although it is true that ‘Bitcoin $20,000’ is still only a detail of the past, it is not correct to say that intra year performance has been poor.
In fact, between January 2019 and April 2019, Bitcoin had been oscillating between $3,500 and $4,200, but towards the end of June 2019, those figures had jumped to $9100 and $11,500 respectively, representing a 300% to 400% gain. Moreover, the all-time high in 2019 was recorded at just under $14,000. Compare that to the year-to-date performance of traditional market indices: DOWJ (+24%), FTSE 100 (+11%), CAC40 (+29%) and Bitcoin still massively outperforms significantly.
The Reasons Why
There’s no shortage of reasons as to why. The US-China trade war has continued to scare traditional markets, Brexit and early year signs of recession (the ‘flippening’ of the infamous yield curve) prompted central banks around the world to lower interest rates, reducing the return in said markets, pushing investors to find returns elsewhere. With the launch of custodial services for cryptocurrencies at leading exchange Coinbase amongst others, as well as the launch by Bakkt of futures settled in cryptocurrency and the creation of new crytpocurrency derivative products at the Chicago Mercantile Exchange (CME), 2019 saw increased opportunity for institutional investors to get involved in crypto.
To Like, or Not to Like?
Yet, as alluded to earlier, in the mainstream, 2019 saw the focus rather shift away from the price and more onto Satoshi’s original vision: Bitcoin as a medium of exchange. Enter: Facebook. In June 2019, Facebook announced that it was planning to launch its own digital currency (and I replace ‘crypto’ with ‘digital’ deliberately here), Libra. To cut to the chase, Facebook assessed that it could leverage its 2 billion person user base to create a WeChat-esque social media payment platform; seemingly having all the benefits of a cryptocurrency.
For more on the detail of Libra, see: [https://www.thegryphon.co.uk/2019/11/04/facebook-power-ahead-with-new-crypto-currency-libra/]
Except Facebook is one of the largest centralised organisations in the world, which has already had issues with data management and is now proposing to collect and manage their users’ financial information (not to mention spending habits). Unsurprisingly, regulators around the world took note and intervened.
The US Senate decided it needed to subpoena the ambitious Zuckerbot himself to face the notorious Senate Banking Committee, re-raising and admonishing Facebook about those very same privacy and data management concerns, essentially letting Facebook know that they would probably not be able to continue until the Committee had been satisfied that the American public could trust the giant. And if you think that was all, France led the way at a summit of the Group of Seven (G7) nations in forming a taskforce that was a specific response to Facebook’s Libra and the future regulation of the industry.
Regulation, Regulation, Regulation
This is against a backdrop of a number of regulatory creations relating to cryptocurrencies in 2019. The UK’s Financial Conduct Authority (FCA) proposed a nationwide ban of amateur crypo-derivatives trading, most western developed countries introduced laws tax gains made in the space as well as introducing a variety of ways to define cryptocurrencies, from assets, to commodities, to securities.
Despite the negative association of regulatory intervention in new industry, not all efforts have been concerning. The small landlocked nation of Leichtensten introduced the world’s first comprehensive cryptocurrency legislation with the sole purpose of trying to attract crypto businesses to the country. Even the maverick former central banker at the Bank of England called for a central bank backed ‘stablecoin’. In the latter half of 2019, China, which historically has had a rather acrimonious relationship with cryptocurrencies (think back to September 2017), announced its plans to do just that; launch a government-managed cryptocurrency in 2020. Usually, when the Chinese government say they want to do something, it gets done.
The Next Decade
So, we might be able to estimate the future of cryptocurrency in China, but what will this mean in 2020 for the space generally. Will the price of Bitcoin (and the market cap of cryptocurrencies as a whole) attempt another journey to the moon? Will legislation hinder or help that journey as well as spur or restrict adoption? The old adage ‘only time will tell’ could be appropriate here.
However, in my opinion, there are some key things to note and to look out for:
- We are less than a month into 2020 and cryptocurrencies have already outperformed the whole-year performance of those aforementioned traditional indices. Although this does not necessarily mean this trend will continue.
- Another world-renowned exchange: NASDAQ has announced it is looking into developing its own crypto-related derivative products. Expect the launch of more such products to be announced and a subsequent increase in institutional interest.
- Bitcoin, the most valuable (by marketcap) and famous of the cryptocurrencies is marking a huge milestone: it’s second reward halving. This will essentially cut the rate of supply of the cryptocurrency in half, which should have an effect on the price if economic theory holds. For more on the so-called ‘Halvening’, see: [https://cryptocurrencyfacts.com/bitcoin-halving-explained/]
- And we will almost certainly see more interventions from the world’s largest companies and, what is now the traditional global regulatory response.
2019 has definitely been an exciting year, but so was 2009, 2011, 2013 and 2017, and no doubt the new decade will bring more.