If the promise of the late-2017 cryptocurrency rage could be described as “get-rich-quick”, 2018 will be known for its motto of “focus on building the fundamental value - and the users will follow.”
As those who entered the market in late-2017 hoping to make a quick buck backed off and scam coins folded by the dozen, developers and blockchain firms got cracking on building (#buidl) new applications and improving existing infrastructure.
Although it is only the beginning of November, review of our 2018 quarterly client reports revealed the following 6 key advancements that set it apart as a breakout year for the cryptocurrency movement:
In July, the Imperial College London predicted that, within the next decade, cryptocurrencies would be used as a payment method for goods and services. The launch of a slew of user-friendly apps and platforms supports their thesis. Getting on-boarded and using crypto has never before been so easy with tipping apps designed for micro-transactions, mobile apps that let you send funds by SMS (no internet connection or smartphone required with CoinText) or bumping phones together (contactless transactions with HandCash), and the Money Button that enables website users to support content creators at the click of a button (nearly instant, nearly free)... to name but a few.
What these projects all seem to have in common is the vision to make cryptocurrency use as easy as pie whether you are in Brazil, South Africa or the USA - and they sure made huge strides towards realising their goal in 2018.
We all have our guilty pleasures when it comes to shopping, and at the end of 2018 chances are better than ever that you can fulfil yours in crypto!
Cryptocurrency PoS (point-of-sale) machine manufacturer and developer, Pundi X estimates that they would install more than 100,000 crypto PoS machines by 2021, as merchants had already requested 25,000 in the first 6 months of the year. Flexa app, which is currently on trial in beta, is another mobile app that is already integrated with payment terminals in over 35,000 locations worldwide, including Starbucks and Nordstrom. Apart from mobile apps and PoS integrations to facilitate crypto transactions, the tide has also brought an increasing number of online merchants who now accept cryptocurrency for payment. And so, great was my joy, when I recently booked flights through Cheapair.com and was offered a choice of paying with BTC, BCH or Litecoin. Payment instructions were simple to understand and the server took under 5-seconds to confirm receipt of funds (Bitcoin Cash, natch).
In a July investment report, major crypto fund Grayscale Investments revealed that the majority of crypto capital inflow (56 per cent!) originated from the pockets of institutional investors. In fact, the total investment inflow in June was one of the strongest fundraising periods since 2013.
And at the end of October, a Morgan Stanley report revealed that for almost a year, it had been their thesis that bitcoin is “a "new institutional investment class". The report asserts that the amount of crypto assets under management has been increasing since January 2016, with $7.11 billion currently being stored by hedge funds, venture capital firms and private equity firms. Well known participants include Fidelity (with their new crypto services division), Andreessen Horowitz with their $300 million crypto fund a16z, and hedge fund billionaire Steven Cohen with his new hedge fund, Autonomous Partners.
The fact that major financial firms have taken the first steps to get involved in crypto in 2018 is a good predictor of greater market stability. Where crypto price movements have been largely influenced by retail investors who are greatly influenced by hype, institutions take a measured, longer-term approach that is backed by diligent research.
The upsurge in institutional crypto investments is no fluke or stroke of luck as it coincides with an escalation in regulatory compliant platforms and trusted custodian services. The way I see it, one of the most exciting announcements of the year was the news that the New York Stock Exchange’s parent company, ICE would be launching Bakkt, a regulated crypto investment platform in November.
Research Fellow in Financial Regulations in The Heritage Foundation’s Roe Institute for Economic Policy Studies, Norbert Michel believes that the Bakkt exchange could make Bitcoin as mainstream as Starbucks:
“The key is that ICE operates two of the largest commodities futures exchanges on the planet—ICE Futures U.S., and ICE Futures Europe. These federally regulated exchanges provide clearing services that effectively eliminate credit risk for the buyers and sellers and that legitimise the transactions for institutional players. (The name Bakkt is a play on words, as in backed by a stalwart institution, or backed by other assets.)
This arrangement is critical because no sane hedge-fund manager, no matter how much he wants or needs a gamble in his portfolio, is going to buy cryptocurrency without being able to ensure he is not buying it from a terrorist.”
While Bakkt alone makes 2018 a breakout year for institutional crypto infrastructure, Fidelity Investments and Goldman Sachs have also entered crypto brokerage positions while JP Morgan is expected to utilise Bakkt’s infrastructure. But, before you conclude that crypto is reliant on traditional banking sector for institutional infrastructure, do take note of Kucoin’s new institutional crypto investment programme, and Coinbase Custody that has already received deposits for secure storage from institutional clients in both the US and Europe, and expects to expand to Asia before the end of the year.
The first developers of cryptocurrency and blockchain projects include a number of individuals with academic pedigree second to none, including Ray Dillinger and Craig S Wright. Educational institutions, however, have taken their sweet ole’ time to test the waters. That was until this year when sources alerted the media that endowment funds of some of the most respected universities in the USA have started investing in cryptocurrency funds. Yale, Harvard, Stanford, MIT, Dartmouth College and the University of North Carolina have reportedly invested tens of millions in cryptocurrency. Even though the individual endowments likely only invested a relatively small portion of their funds, Yale’s endowment which is the second largest behind Harvard manages over $29 Billion.
As an additional green light to high calibre endowments and institutions, the CFA Institute added the topic of cryptocurrency and blockchain technology to their curriculum in 2018. As the CFA Institute is “the premier global association for investment management professionals”, we hope to see traditional financial advisors being better equipped to advise clients on crypto investment than before.
As the crypto movement saluted the 10th anniversary of the bitcoin whitepaper in October, blockchain developer nChain honoured the occasion by restoring all of the original bitcoin op-codes to the Bitcoin Cash network. The creators of the new software client, Bitcoin SV (Satoshi’s Vision) also undertook the removal of the block size limit with a view on inviting development by projects that have thus far been hindered by insufficient data storage limits.
While the 2017 cryptocurrency price boom won the mainstream media’s attention, it was vastly out of sync with the market’s underlying value metrics. The real growth spurt in the cryptocurrency sector, we believe, occurred over the 2018 period. While crypto prices found themselves under constant pressure, ecosystem development soared.
As we are heading towards the end of the year, it is fair to say that the cryptocurrency ecosystem has never been in better shape to welcome and delight new users - institutional and retail alike.