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January 23, 2019

Year of the Pig? No, it's the year of crypto!

2018 was a whirlwind of developments, both positive and negative, for cryptocurrency. On the positive side, adoption of cryptocurrency continues to grow, with old-school banks and tech companies jostling to join the crypto buzz. But the crypto world has been rocked by scandals, not least of which is the shocking drop in Bitcoin value from a high of $20,000 this time last year, to around $3600 today. What the does future hold for crypto? We’ve got a few guesses.

 

BIG FINANCE AND INSTITUTIONAL CASH

 

One of the biggest developments in 2018 was the advent of private blockchains and bank-backed cryptocurrencies, with names as big as Goldman Sachs and Morgan Stanley getting into the crypto game. While their projects are starting, 2019 promises to see further development in that sphere. JP Morgan’s CEO Jamie Dimon once famously claimed crypto to be a “fraud”. But their own blockchain, Quorum, seems to be going in full throttle. Not to be left on the sidelines, Goldman Sachs and Morgan Stanley have begun to clear bitcoin futures for their institutional clients, signaling a change in how investment banks have traditionally viewed cryptocurrencies. Even national banks are feeling the hype - Brazilian state-owned bank Brazilian National Social Development Bank has declared its intentions to launch a pilot cryptocurrency in 2019.

Tellingly, the BNSDB’s token will be a stablecoin, pegged to the Brazilian real on a 1 to 1 basis. The state-owned bank hopes that the public blockchain will restore trust in the bank after a history of corruption scandals dented its reputation. If the BNSDB’s experiment proves successful, it may be a sign for other national and state-owned banks to sit up and start their own crypto projects, especially in developing countries who have struggled with enforcing rule of law.

 

WHY STABLECOINS ARE THE FUTURE OF CRYPTO

 

Historically, one of crypto’s biggest impediments to mainstream adoption has been the rocketing volatility of the biggest cryptocurrencies, namely, Bitcoin. But stablecoins, which are quickly becoming a household name amongst those in the know, promise to solve that problem. A stablecoin is considered stable thanks to it being pegged to a specific fiat currency, such as the US dollar. Stablecoins haven’t had the smoothest ride in 2018 - Tether, the most popular stablecoin, has been dropped by its bank, Puerto Rico based Noble Bank, and its associated exchange, Bitfinex, has faced criticism after failing to adhere to investor concerns about transparency and funding.

But Tether is no longer the only name in stable - competitors like TrueUSD, Paxos, and Gemini throwing their hat into the ring. Unlike Tether, these competitors have been cleared by at least one regulator - the famously tough New York Department of Financial Services. All these coins are pegged to the US Dollar, but that’s not to say that other fiat may come to the fore as well - one promising market to keep an eye on is China, as the introduction of China’s social credit system will surely open up interesting avenues for alternative transaction methods. It’s almost a guarantee that further growth and mainstream interest in stablecoins will serve as the launching point for massive cryptocurrency adoption.

 

WHAT’S IN A SECURITY? CRYPTO AND REGULATORS REACH A TURNING POINT

 

Speaking of Gemini and Big Finance, another 2019 development to keep an eye on will be the continuing adoption and approval of security tokens and Security Token Offerings by state regulators. Governments have often had a hostile relationship with cryptocurrencies - not without reason, as one of the biggest uses of Bitcoin was the famous Silk Road market, a dark web marketplace for illegal drugs and pharmaceuticals. But crypto enthusiasts have been hard at work turning that reputation around. Security tokens are the latest developments in getting crypto to play nice with regulators. The genius of a security token is the fact that it is a security, working much like traditional shares. But any security can be converted to a token, from bonds to derivatives. And Security Token Offerings, or STOs, seemed poised to take over from the oft-maligned ICO process, which has come under SEC scrutiny.

In fact, the largest security token transfer of 3.6 million USD in equity was just completed in mid-December by Medici Ventures, a subsidiary of Overstock.com. Equity transfers are perhaps one of the best use cases for a blockchain, providing an immutable record of ownership with no middleman required. Security tokens and STOs are poised to completely revolutionize the way we think and trade securities, opening up ownership to regular people, and not just giant public corporations. Imagine supporting your local grocery shop and restaurants with security tokens, giving you a direct stake in the health of your community, and in its financial success. It wouldn’t be a far stretch to say that security tokens might very well change the world.

 

BITCOIN FUTURES AND THE MARGINAL REVOLUTION

 

Another big trend to watch as we enter 2019 is the growth of marginal trading in crypto markets. The emergence of a lending market for crypto paves the way for high-risk, high-reward investment strategies, and many exchanges now offer leverage of up to 4x - thought a select few offer positions of up to 100x. Marginal trading is being introduced throughout the ecosystem - even stablecoins like Tether can now be margin traded at Bitfinex, with more stablecoins to come. This means that savvy - and lucky! - traders have a shot at reaping huge payoffs. Keep an ear out for news of inevitable marginal wins - and losses. Marginal trading goes hand in hand with another sign of crypto market maturation - the start and expansion of derivative markets for crypto. Goldman and Morgan Stanley already offer clearing bitcoin futures on Chicago exchanges CBE and CBOE.

In fact, Morgan Stanley is taking a step further, and all signs point to the firm launching their own, proprietary Bitcoin derivative swaps come 2019. They’re not alone in that venture either. Citigroup, a New York-based bank and the 5th largest in the country, is planning to launch its own derivative product. Called Digital Asset Receipts, Citigroup aims to allow institutional investors investment options in bitcoin and crypto without exposing them to the assets. And in fact, regulators like the United States-based Securities and Exchange Commission are allegedly mulling over the possibility of allowing bitcoin exchange-traded funds. Taken all together, these moves are will definitely cement crypto as a mature and attractive investment vehicle in 2019.

 

TO THE MOON

 

The 80% or so devaluation in bitcoin value over the last year has surely sent investors reeling, and is in many ways some of the biggest news in the crypto sphere in 2018. But what about the next year? Obviously, its incredibly difficult to predict price movements ahead of time - or you’d be rich! But here are a few things to keep in mind while when the new year rolls in:

  1. Don’t Panic! Bitcoin has seen price drops, reversals, and chaos before. The amount of new investment in crypto, and bitcoin specifically, will mean that no matter what, the coin has a long future ahead of itself.

  2. Diversify into altcoins! While this hasn’t been the best week for altcoins either, Bitcoin’s dominance in the crypto sphere has long been claimed as an obstacle to innovation, it’s fall may pave the way for newer, more innovative tokens and products to come to the fore. Stablecoins, STOs, and marginal trading mean that even if a particular coin experiences a downfall, the ecosystem itself remains on solid fundamentals.

  3. No one expected the rise! While the 20k bubble might be popped, there’s nothing stopping Bitcoin from shooting up rapidly in value once again, once the market has determined its fall has reached a plateau. While some naysayers claim that 2019 will see sub 2k and even 1k prices for Bitcoin, there’s no sound reasoning for why that might be. This leaves the door open for a meteoric rise.

Considering the number of new products, derivatives, and security tokens coming out either on the bitcoin chain or based on it, it seems almost impossible to imagine a world where Bitcoin doesn’t regain at least a portion of its former dominance.

 

SO WHAT DO WE REALLY THINK?

 

2018 may have been a roller coaster ride, but 2019 looks to be shaping up to be the year crypto matures. With all the new, big players entering the space, along with derivative products, security tokens, stablecoins, and more, cryptocurrencies are finally moving out of the reputation of its early, Wild West heyday and into common financial usage. There’s no doubt that 2019 will show that crypto is just starting its path to changing the world.