From Hype to Heads-Under-Pillows: A Cryptocurrency Year in Review

Investment markets are like roller coasters. The higher the climb, the steeper the fall — and the more people scream along the twisty turns and loops on the way down. 2018 was certainly a roller coaster of a year for the cryptocurrency market. The year started with extreme ebullience. Market pundits predicted 2018 year-end values of Bitcoin crossing fifty thousand, one hundred thousand, or even John McAfee predicting Bitcoin would be worth one million dollars by 2020! Blockchain was considered something every company needed to adopt immediately, else they would be left behind technologically. Companies built blockchain versions of AirBnb, Amazon and Yelp. Projects raised millions in cryptocurrency to become the blockchain versions of every standard business model, whether or not including blockchain made the smallest bit of sense.

Chinese New Year was the first big dip. Most cryptocurrencies reached their peak in mid-January with a big spike, then there was a big sell-off that sank market spirits. The die-hard hodlers said not to worry. This was just the Chinese markets cashing out to spend money on their families over the Lunar New Year holiday. Many comparisons were drawn to prior year charts that clearly showed a similar spike and drop around Chinese New Year, followed by massive gains. Few suspected, or were brave enough to mention if they did, the continuing bear market that 2018 would bring.

The Initial Coin Offering (ICO) craze continued from 2017, with Telegram and EOS raising Billions of dollars in cryptocurrencies, then released products with lackluster results and endless controversy. Speculators excitedly bought every ICO they could get their hands on in hopes of selling when listed on exchanges, in the goal of quickly receiving large gains. Many ICOs created massive hype to raise money to build products that may or may not even need blockchain. The scams, Ponzi schemes, and joke ICOs were so many that a whole website cropped up to track this.

Fears of market scams were fueled by the position the U.S. Securities and Exchange Commission (SEC) took on ICOs that every coin is a security. Jonathan Ingram, SEC Deputy Chief Counsel, Division of Corporation Finance, said in December,

“We have not yet seen an ICO that is compliant.”

This talk was for attorneys at the Washington DC Bar Association, so this statement was not a surprise to anyone in the room. But near the end of the talk there was a notable tension in the room when Mr. Ingram said, “We are planning to file actions against every single ICO.”

It is understandable that investors became nervous when the SEC started lawsuits against many companies, with no legislative relief in sight. Lawsuits sink startups in the best of times, but this started a domino effect of companies having raised ICO funds needing to pull money out of cryptocurrencies to pay for litigation and fines, or to buy out some investors. And doubtless there are speculators who did not understand what they were purchasing in the ICOs they bought into who have filed complaints as well. These tensions continued to hold markets down, and the disappointing exchange listing of several of the hot ICOs, plummeting to lower prices than early investors paid as soon as they hit open markets, made many nervous and this sharply contracted the ICO market.

Throughout the summer the price of Bitcoin stabilized, while the price of Ether continued to drop. This downward pressure on Ether was likely due to companies that had successfully raised ICOs mostly having raised in Ether, then selling off chunks of their tokens to pay off costs related to their sale and development costs. The official word at that time was still to keep most of a company’s treasury in crypto. Actually it was a dastardly thing at the time to sell out for fiat, you would have been considered a traitor to the crypto world if you sold while the market was tanking. Thus by the fall when most companies I talked with proudly would puff up and say they sold out to fiat back in the spring, I highly doubted that statement, and questioned anything they said afterwards.

In the fall I started to feel more hopeful when it appeared Bitcoin had stabilized in price for nearly six months. If this trend continued, a stabilization of prices would make new investors comfortable to come in the market. Bitcoin could be marketed as the safe, secure, alternative to government-issued currency. But the Bitcoin Cash hash war threw a wrench in that hope. Two billionaires decided a pissing contest was more valuable than the financial lives of millions of crypto investors. The blatant market manipulations of the hash war made investors and the financial world nervous, pushing back mainstream adoption by months or years.

I would love to be more optimistic, but I can’t help but think we aren’t out of danger yet. Most of the crypto funds that launched in early 2018 had one-year redemption policies. Thus investors in these funds have watched the market crash without any way to take their money out. Redemptions from investors in these crypto funds are likely to start coming in soon. Plus the companies that raised funds in ICOs and are still building are running low on funds and cashing in continually more cryptocurrency to make overhead and payroll. I expect when tax time rolls around we will start to see bankruptcies of companies that raised many millions just last year.

It seems likely the wild roller coaster will continue for at least six months longer before stabilization and significant new growth returns. However, it is impossible to ever time a market bottom, and clearly prices have been beaten down to the point where it is hard to imagine them sinking much lower, short of crashing to zero.

I give the zero value for the whole cryptocurrency market a very slight odds.

With that in mind it seems a possible smart move would be to start investing small amounts of money using dollar cost averaging on a weekly or monthly basis, to build positions in your favorite coins while the market remains low. The wild down market movements are quickly forgotten when the next roller coaster ride begins.

About Crystal Stranger

Crystal Stranger, EA, has more than 15 years of tax and finance experience, is a journalist and speaker on blockchain and crypto technologies since 2014, and author of The Crypto Island Tax Guide.

Self-taught, she read every investment book in the library to catapult herself from homeless to millionaire investor in two years. Applying the same intensity and focus to every interest, Crystal founded PeaCounts, using blockchain and AI technology to revolutionize how workers are paid, eliminate black market labor, and help individuals break the glass ceiling.