With another year behind us, it’s a perfect time to look at all of the incredible developments that defined the digital currency industry in 2018. We began the year with record prices and extraordinary growth, at the tail end of one of the greatest bull markets in trading history.
By February, however, traders were faced with a sustained slowdown. Yet while values and volatility weren’t always where traders wanted them to be, the behind-the-scenes development of the cryptocurrency industry continued at a furious pace, pushing adoption and utility to new heights.
Overall, it was a year that was often thrilling and sometimes concerning, but never less than a worthwhile ride.
To help you better understand how far we’ve come and where we’re going next, let’s take a look at the six biggest trends that shaped 2018.
Prices are down, but adoption and development is up
There’s no denying it: cryptocurrency values have declined sharply since January 2018. Yet traders should remain hopeful for two reasons.
First, this price decline is coming on the heels of one of the greatest market expansions in history. It’s natural for valuations to settle after undergoing exponential, record-breaking growth.
Second, and most importantly, while values have dropped, development and adoption have soared. The cryptocurrency industry’s trading infrastructure has taken a massive leap forward in 2018, after struggling to keep pace with surging demand in 2017. Today’s trading platforms are more sophisticated and secure than ever before, and offer significant performance improvements.
Institutional interest in digital currencies is at record high, with heavyweights in the global finance realm beginning to enter the market in force. The introduction of Bitcoin futures was another major step forward in the professionalization and maturation of the digital asset space. Ethereum futures remain on the horizon, as does the possibility of the first Bitcoin ETF, which would be another key milestone.
Additionally, the technical side of the digital currency space has never looked so promising. Bitcoin’s long-awaited peer-to-peer micropayment solution, the Lightning Network, debuted to much fanfare this year.
Ethereum’s developers, meanwhile, made substantial progress toward realizing Ethereum 2.0 (a project sometimes dubbed “Serenity”). This would be a radical update that includes switching from the existing proof-of-work model to proof-of-stake, and adopting a scaling solution called “sharding”.
A Dramatic Increase in Cryptocurrency Use in Countries Battling Hyperinflation
One of the most attractive things about digital currency is its global, peer-to-peer nature. Anyone can send coins or tokens across the world in a matter of minutes, or even seconds, with no intermediary involvement.
For people living in Venezuela, Turkey or other countries battling hyperinflation, access to a peer-to-peer global currency has been a lifesaver. Political instability resulted in Venezuela’s national currency (the Bolivar) losing much of its value, causing the price of goods and services to skyrocket, leading to food shortages and inadequate access to medical care.
Many Venezuelans struggled to pay for the basics of survival. Even worse, the Venezuelan government restricted their citizens’ ability to transact in foreign currencies or gold. This situation led many of them to seek shelter in Bitcoin, Dash and other digital currencies, whose value remained far more stable than that of the Bolivar, with its staggering 46,000-percent inflation.
Numbers released by the developers of Dash showed that Venezuela has become the second-largest global market for their coin, an impressive feat given how small Venezuela is compared to other countries where crypto is popular (China and Russia, for example). Bitcoin trade volumes are also quite high in Venezuela, and more than 2,000 merchants in Caracas (including Subway, KFC and other large firms) now accept Dash, Bitcoin or other cryptocurrencies.
Should the world experience another global financial crisis similar to the one seen in 2008, crypto adoption in Venezuela could be a mere hint of much greater adoption to come, as citizens flee the volatility of hyper-inflated national currencies.
Utility Has Finally Arrived
One of the long-standing critiques of digital assets is their relatively limited real world use, both as retail currency and as an enterprise solution. Though many observers have said this criticism is misguided (after all, Bitcoin didn’t exist even a decade ago), it is one of the claims most frequently asserted by cryptocurrency bears.
These claims may not be viable much longer, however, as real world utility is finally at hand. One example is Ripple, one of the most prominent and valuable projects in the digital currency space. Ripple’s primary focus is the global finance market; by using two of the project’s core technologies (XRapid and XCurrent), banks and other financial institutions can move money across borders faster and cheaper.
Ripple’s XCurrent (which is now being used by American Express and other major finance industry firms) allows for interoperability between all currencies, both digital and fiat. This means that by using XCurrent, a sender can pay in Euros while the recipient can choose to receive dollars or another currency.
XRapid, which uses the XRP native token, offers financial institutions greater liquidity. By moving assets in and out of the XRP token, transactions are much faster and cheaper, often costing just pennies and requiring a fraction of a second to complete.
As Ripple and other cryptocurrency projects begin to apply their tokenized solutions to enterprise business cases, the effect on the markets could be significant. Greater use should mean more demand for coins and tokens, creating more value for digital currencies and broader exposure to the public, two events that could play a significant role in kickstarting the next bull market for cryptocurrencies.
Mass Adoption is Coming
In the very early days of cryptocurrency, adoption meant paying for a pizza with a few hundred mined Bitcoins. Today, however, cryptocurrency adoption has expanded well beyond online purchases or even point of sale transactions. In fact, the march toward mass adoption may not be led by retail transactions at all.
That’s because cryptocurrencies have evolved well beyond their original use case. Today, digital currencies are being developed to power enterprise blockchains; to facilitate machine-to-machine micropayments; to pay digital publishers in lieu of cash; and to allow social media users and gamers to buy, sell and trade within their dedicated ecosystems.
This means that adoption might not be led by retailers accepting digital currencies in shops, but rather by the process of an electric driverless car recharging itself automatically, using a cryptocurrency for its machine-to-machine micropayment. Or a Fortune 500 company seeking to put significant parts of its business on a public blockchain, creating an exponential increase in demand for the tokens needed to power transactions on the chain.
As pure currency coins like Bitcoin and Bitcoin Cash become more refined, and platforms like Ethereum address scalability issues and become more and more enterprise-friendly, the road toward mass adoption becomes ever shorter, as 2018 highlighted.
A Reduction in Market Volatility
Digital currencies have long been synonymous with extreme volatility. Price increases and decreases that would be eye-opening in equities markets have long been par for the course with buying cryptocurrencies, where double digit swings are routine.
This heightened volatility often leads to exciting opportunities for advanced traders, who can profit in both up and down markets. For the more casual long-term traders, however, radical volatility can be off-putting. Nobody likes seeing a major price movement in the wrong direction immediately after taking a position.
While high volatility is typically natural for emerging asset classes, there were signs in 2018 that cryptocurrency’s volatile nature is winding down. In September, 2018, the markets witnessed an extended period of low volatility, with Bitcoin’s value hovering near $6,000 for more than one month.
Volatility eventually returned in mid-November, though some observers believe it was exacerbated by the contentious Bitcoin Cash hard fork. Nevertheless, this extended period of low volatility this fall is likely a harbinger of things to come, as the digital currency space continues to mature, adoption increases and market infrastructure professionalizes.
Within a few years, the days of extreme volatility may seem like a quaint memory, as the digital currency market begins to more closely mirror stocks and other more traditional markets.
Survivor: Crypto Edition
Given the broader market landscape (with values and market capitalization shrinking over most of 2018), it’s natural that there has been some reshuffling atop the cryptocurrency pecking order. Some coins and tokens have weathered the storm better than others.
Once example is XRP, which displaced Ethereum for the number two ranking by market capitalization. Thanks in part to a series of high-profile partnerships with financial heavyweights and increasing enterprise usage, the XRP token has held its value better than most during this year’s price correction.
Other coins and tokens, typically those with limited development and minimal use, have fared much more poorly, with some losing in excess of 95-percent of their value. However, this “survival of the fittest” phenomenon should prove to be a boon for the crypto market as a whole.
Because the barrier to entry for creating a new token is so low (it’s possible to create an Ethereum-based ERC20 token in less than a half hour with minimal expertise), the market was inundated with projects of questionable quality in late 2017 and early 2018. Many of these low quality projects have withered, with trading volume dropping to almost nothing and values plummeting.
This movement toward more established cryptocurrency projects is very similar to the “flight to quality” phenomenon seen in the stock market during corrections. When larger market conditions begin to lag, traders are more careful about where they put their money, and generally redirect it to “blue chip” stocks or digital currencies.
By the time the cryptocurrency market reverses, we could see the top coins and tokens entrenched, and some of the weaker contenders exiled off the island to permanent irrelevance.
The Takeaway
It’s been a wild and often fascinating year for buying crypto, as the euphoria of January was replaced by depressed price action throughout most of the rest of 2018. However, despite the end of one of history’s greatest bull runs, the vital signs for the digital currency space are stronger than ever. New development and increasing utility and adoption herald great new things on the horizon.
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