Eyes on Blockchain: Researching the Crypto Communities’ [Split] Perspectives
While 2018 has concluded one of the longest ‘winters' the cryptocurrency market has ever seen, we take the time to look at some of the members of the community and what they think about the cryptocurrency and blockchain world as we walk into the new year.
Introducing the Analysts
Speaking as the Senior Analyst for Crypto Research LLC, Tom Shaughnessy made his opinions clear regarding the landscape for cryptocurrencies and the market.
“The fourth quarter of the cryptocurrency market has been in the proverbial waiting room to get the prognosis from the doctor about its longevity. Specifically about its longer-term health when it comes to future and existing blockchain projects, and there are plenty of the latter out there that otherwise can't afford to get the same ‘check-up.'”
Shaughnessy continued on to argue that the cryptocurrency world has had a major reality check, especially for the likes of major names like Bitmain and ConsenSys, which have cut a large percentage of their workforces), as well as a number of its major projects such as ETC development has seen cuts alongside Seemit.
“While the reality of the situation is a trimming of the figurative fat from the cryptocurrency world. And while this took place, the remaining community of developers is stronger than ever in our opinion as resources shift from prospective projects to those that have some real use cases behind them,” Shaughnessy continues.
“The long-awaited Constantinople upgrade that is coming to Ethereum offers a wider range of developer updates, paving the way to the more expansive ‘Serenity' upgrade. We have seen the likes of MakerDAO grow increasingly, and is now locking in up to 2 percent and above of all Ethereum like decentralized finance grows, as well as Bitcoin's Lightning Network have all seen a significant rate of growth over late 2018 and into 2019.”
The Co-founder of Delphi Digital gave his own, more colourful perspective on the tail-end of 2018, referring to the market performance of risk assets as a veritable ‘bloodshed' for projects.
“Q4 saw a lot of bloodshed across a broad range of risk assets, with a greater number of crypto prices not being saved in the slightest from this same mercilessness.”
While for Shaughnessy has referred to it as a proverbial rehabilitation of the cryptocurrency market, Kelly is not so inclined to provide the same conclusion:
“We may not be out of the woods yet, but we are starting to see a number of signs that a bottom for the likes of Bitcoin may be on the horizon.”
Kelly goes on to suggest that this may, in fact, be a shorter horizon than we think, with the co-founder stating that current metrics point to a Q1 2019 bottom being found for BTC.
“If historical cycles are any kind of Guide. Sentiment has certainly shifted from pure euphoria to skepticism, which doesn't really come as a surprise, considering how much the market got ahead of itself in 2017.”
But Kelly does provide sunshine breaking amongst the cryptocurrency clouds as we steadily move into 2019.
“This year will likely mark a turning point where teams that are working to build real products with real use cases attached, and consumers that are eager to get involved in the shopping floor of this product. These projects will result in the attraction of both talent and capital in order to make dramatic improvements to this market.”
Ria Bhutoria, speaking as the Lead Analyst for Circle Research and Circle Internet Financial has discussed the flipping of the paradigm from an interest in Initial Coin Offerings, as well as retail mania, and a movement across to address the real pain points that exist for both consumers as well as institutions.
“It's this movement that should drive sustainable adoption and will work to help the industry mature. Pain points we expect will be addressed include improving the user's experience, as well as help, encourage institutional adoption, further integrating the likes of stablecoins into applications which require a price-stable asset, as well as finding ways for projects to compliantly raise money through vehicles such as security token offerings.”
The founder of Aike Capital believes that the market is in a doldrums that is set to continue for a longer stretch of time than other analysts have predicted. Kruger has stated that the first quarter of 2019 has brought with it some seriously bad news; with the government shutdown bringing the Securities and Exchange Commission going down with it, resulting in the withdrawal of the Van Eck Bitcoin ETF application which was put forward to them by the CBOE.
Along with this set-back, Kruger goes on to highlight the issues that are contributing to a broader negative trend that looks set to continue but may be offset by some positive trends.
“Meanwhile, the Bitcoin community is excited with GRIN, LN continues to expand, while the Veil app has helped to revitalize Augur, Maker's DAI continues to grow in a volatile market. TRON has also managed to capitalize off its continued maturing of the BitTorrent Token, the Bitcoin market is back into a state of accumulation right now.”
But while there is a counterbalancing of good and bad news, Kruger believes that there are still a series of new lows to be experienced by the cryptocurrency market.
“I see considerable odds of new lows. Incremental retail demand has disappeared, institutional interest continues to wane, and miners and exchange always need to sell.”
“Q4 2018 saw the final capitulation of most ICOs and blockchain projects that gave us nothing but hot air.”
The Executive Editor of CoinSpice sees this as a great filter moment for cryptocurrency, blockchain projects, and ICOs. The days have long gone for these projects to survive off ‘nothing but hot air.' And it requires more than just hope from a project to success now, as Otto goes on to explain.
“Blockchain, like all new technology, must be accessible and have undeniable utility. When people realize that our greatest opportunity, then and now, is as a P2P electronic cash system, the whole space will be a lot better off. Projects which understand this will emerge at the end the current bear market as champions; unscathed and a top pick for investors as the new bull market begins.”
Consultant & Founder of On-The-Chain argues that 2018 was not the best year for finding a lucrative price point for the cryptocurrency and cryptoasset world, but it had its moments, as Kennelly goes on to argue.
“2018 was an exceptional year for building and learning. The Lightning Network (LN), and MakerDAO were among the top developments in 2018. This past . year, LN went from virtually 0 to 5,000 nodes.”
Over the course of Q4, 2018 saw the increased performance of the likes of the Lightning Network, as well as alt and Stablecoins, have emerged as potential and future challengers to behemoths that have otherwise been humbled over the course of 2018.
“In Q4 alone, LN capacity nearly tripled. As for MakerDAO, its Dai has remained stable while ETH declined by more than 90 percent over the year. Furthermore, Q4 saw a 65 percent from Q3 to Q4 in the number of collateralized debt positions (CDPs) created with Maker. Looking forward, I am especially excited for WBTC (Wrapped Bitcoin) to serve as a collateral derivative for Dai. What a time it is to be alive.”
While there have been more than a fair share of times when the mainstream media has declared the death of Bitcoin. The head of research has other ideas about what Q4 of 2018 represented for bitcoin and its countless contemporaries.
“Q4 proved yet again that yes, miners will go offline when a cryptocurrency proves itself to be unprofitable… And no, this doesn't cause a ‘death spiral' contrary to popular belief.”
While there have been a number of interesting phrases and metaphors used to describe this period of time for the cryptocurrency market, Bendiksen has another more positive outlook.
“In that sense, this was the most exciting quarter in years from a Bitcoin mining perspective. For the first time ever, the technological development of mining gear had matured to the point where the industry could observe meaningful, successive difficulty decreases on the back of large price contractions.”
What this led to was far less in the way of a ‘death spiral,' and instead, it saw the necessary removal of obsolete hardware, and a push for more effective, energy efficient equipment.
“As miners saw their cashflows turn negative, large amounts of unprofitable hardware was shut down and removed from the market. Furthermore, the system worked exactly as intended with difficulty coming down almost 40% and setting a new profitability equilibrium to reflect the reduced hashrate.”
While the market will be enduring its fair share of lower price points, meaning that investors will be looking for some real-use case projects, while businesses will be pushed on whether or not their projects will be able to deliver on these.
Meanwhile, miners will be looking at a far more optimistic outcome for 2019.
“Looking ahead towards the next price cycle and reward halving, I am extremely excited for those miner entrepreneurs whose economic calculations were correct. I also look forward to the improvements this broader disruption will bring to the industry as a whole.”
Speaking as an analyst for Messari, finds himself in a certain degree of agreement with Bendikson, arguing that 2018 has been a time when we've seen investor perspectives towards cryptocurrency investment come full circle.
“Q4 saw the price of bitcoin and other digital assets take new investors full circle from “hilariously rich” to predictably “rekt”. But by any other measure, this quarter was one of the industry’s best, specifically for scaling and privacy.”
One of the positives that come with the added maturity of the cryptocurrency and blockchain markets is the fact that the number of options that users have when it comes to user confidentiality software increases exponentially, with 2018 being the biggest example of this.
“The quantity and quality of privacy options grew enormously with the continued development and record-breaking use of other Bitcoin solutions like Samurai’s Stonewall feature and CoinJoin use via Wasabi Wallet and the launch of both Grin and Beam just around the corner.”
While 2018, especially during its later quarters, we saw a veritable burning away of non performing projects. And Voell goes on to state that the leaps and bounds in progress made by other crypto assets and blockchain solutions towards scalability shed light on the kind of optimistic landscape that is being spelled out for cryptocurrency enthusiasts over 2019.
“Scaling solutions for Bitcoin (and other assets) also bounded forward with Blockstream’s Liquid sidechain and the steady clip of infrastructural build out that Lightning developers maintain. In short, Q4 positioned 2019 to be the industry’s most successfully private, scaled year to date.”
The Head of Research for The Block, Steven Zheng believes that the latter months of 2018 have acted to weed out the non-performers as well as cut down on the otherwise unscrupulous activities taking place within the cryptocurrency space, especially during the bull run.
“In Q4 we saw the bear market finally take its toll on the industry’s rank and file. A blend of poor treasury management and exuberant spending during the bull run ended with firms desperately looking for ways to cut costs.”
One of the ways that some of the bigger, more lucrative guilty parties have managed to absorb the winds blow that this bearish trend has brought with it is by cutting costs through layoffs of perceived non-essential members of staff.
“And, as we’ve seen, the most attractive cost-cutting option appeared to be widespread layoffs. Crypto businesses ultimately realized that they were spending too much time thinking about crypto economics rather than business economics and were rightfully penalized. My prediction for the new year is more layoffs, followed by an intense refocus on building products that actually matter for end users.”
Rejuvination, according to Nic Carter, a Partner for Castle Island Ventures, has been one of the major phrases that can be used for blockchain projects, as well as public investor interest in the public blockchain and cryptocurrency markets.
“Q4 saw sentiment found a new low as enthusiasm for public blockchains continued to abate. Despite this, some trends continued to manifest: block usage on Bitcoin and Ethereum continued its recovery as the major chains saw fresh utilization; LocalBitcoin volumes ticked up, especially in crisis-struck countries; and more mature market infrastructure plays were funded and announced.”
While we have seen a profound impact on the willingness of venture capital to get involved in the world of cryptocurrency and blockchain projects, it remains steadfast in following those projects with some effective real-use cases.
“Subjectively, venture funding finally felt the chill from the downturn in public markets, but it remains robust overall. In the next quarter, I expect a few larger ICO projects to make a stand against regulators while most others melt away and give back what funds they can.”
ConsenSys (Product and Security Engineer)
“This quarter we’ll see a continued focus on enabling mainstream adoption as major obstacles discovered in the past two years are being cleared.”
The Product and Security Engineer for ConsenSys believes that the Q4 trends for cryptocurrency and blockchain project performance are balancing out while allowing for real-use cases to take point when it comes to investment.
Meanwhile, we are seeing far less in the way of hot air in the blockchain projects as well as cryptocurrencies.
“Stablecoins will solve volatility while scaling solutions and refined user interfaces will gradually make trustless e-commerce on the Internet a reality. Useless coins will continue to die off as investors have become more skeptical about the value propositions of blockchain projects. I expect investments to flow into platforms that innovate and consistently deliver real-world use-cases.”
CoinText (Chief Technology Officer)
CoinText's CTO has been an interesting turning point for the likes of cryptocurrencies and blockchain projects. But, keeping to his office title, Armani went on to question some of the interconnectivity that exists within the blockchain space.
“The last quarter of 2018 was a turning point for Bitcoin and the wider cryptocurrency market. The Bitcoin Cash “Hash War,” which resulted in the creation of the Bitcoin Satoshi Vision (BSV) network fork, left many questioning their understanding of the interconnected nature of the ecosystem.” Armani continues.
“Major Bitcoin miners battled in November, moving hash power off of the BTC network and onto BCH while selling large sums of many different coins to keep the war raging. The resulting price action was a shock to many, who thought that conflict on one chain wouldn’t spill over onto theirs.”
While 2017 saw investors take on an overly optimistic and bullish perspective towards the cryptocurrency and blockchain market, Armani goes on to stress the need for investors to take on a more reasoned approach towards various projects, including market sentiments.
“In the coming years, as consolidation continues in the mining industry, investors and entrepreneurs alike will be wise to gauge the sentiment not only of the market as a whole, but of the key individuals who can turn their personal conflicts into market-wide turmoil. In 2019, I expect to see impressive growth of the entrepreneurial portion of the community, thanks to an ever-growing set of tools built specifically to empower new breeds of Bitcoin businesses.”
Democracy Earth (Coder)
“In the ecosystem of decentralized applications, use cases that get traction can be found in the metrics that are intrinsic to each project.”
As one of the Coders for Democracy Earth, Santiago Siri argues that there is a real interest that is growing throughout 2018 and into 2019 for decentralized credit.
“In the case of Maker DAO, the sustained growth of created CDPs (Collateralized Debt Positions) throughout 2018 shows a real interest in decentralized credit. Other projects like Aragon, DAOStack and Democracy Earth benchmark the economic activity around DAOs (Decentralized Autonomous Organizations).” Siri continues.
“These metrics rather than the analogy of measuring Daily Active Users —as if blockchains served the same purpose of web-based networks— are far more relevant to understand what’s actually relevant in the dapp ecosystem.”
The fourth quarter, Hales argues, was a sour note for the cryptocurrency market, as prices hit lowes that are likely to continue. But, the Creator of BitBacker.io cites an interesting development in the wider world for what would bring about more real-use cases, as well as what would bring about more investor interest and mass adoption – that being the growing trend of repression going on both on social media, and in the world.
“Q4 closed out the year on a dour note, with prices around the lows of the year. However, the continued censorship and deplatformings on social media platforms and payment processors have created an incredible opportunity. Blockchain and free speech focused platforms such as BitBacker.io will lead a wave of crypto adoption. While we won’t see a return of the speculative frenzy of 2017, there will be a large increase in usage accompanied by a modest price recovery.”
Q4, in spite of being one of the most brutal quarters for the cryptocurrency market, has been a covertly interesting one of blockchain and bitcoin, by extension. This covert innovation includes the kinds of discussions which are starting to bubble and boil over.
“Q4 2018 was quietly one of the most interesting times to be in Bitcoin. As the price dropped, so did its importance in the conversation. We started to see more philosophical questions on Bitcoin emerge. Discussions regarding POW vs POS, Big Blocks vs Small Blocks, On-chain vs Off-chain Governance became mainstream…”
While 2017 and 2018 saw far in the way more volatility for the likes of hard fork updates as well as network upgrades. But 2019 involves far more in the way more stability from users that now know what it means to have these updates happen.
“The average crypto user will be more comfortable with hardforks & network upgrades as we can assume all forks that can exist, will exist. Bitcoin will be defined as the sum of all forks. I believe the most exciting future developments are in Bitcoin-As-A-Computer.”
Innovation is what will help to push investor interest, both for individual blockchain projects, as well as the broader dream of a decentralized internet that we look towards.
“As more developers enter the space and actively build applications that store, manage, and run data on-chain, we will see exponential progress in what I believe is the first true “World Computer”. The implications of this are incredibly far-reaching. Regardless of what happens in the near term, this is one of the most exciting times to be building in the space. I look forward to a Bitcoin future.”
Enter The Lawyers:
Athena Blockchain (General Counsel / Co-Founder)
The Government shutdown has not done the cryptocurrency world any favors, Hinkes goes on to argue. Speaking as the General Counsel and Co-Founder of Athena Blockchain, the withdrawal of the Van Eck Bitcoin ETF has not stopped the Securities and Exchange Commission from taking on an otherwise informal position as cryptocurrencies continue to perform well.
“The SEC continued its informal “guidance through enforcement,” started with the July 2017 DAO report, and emphasized through its settlement orders with Tokenlot, Paragon, Airfox and others, and its summary comments issued shortly thereafter outlining a “path to compliance” for issuers of non-complaint products, that the law as it exists will be applied to securities, regardless of their form of issuance.”
2018 has seen the international community take on a diverse (or mongrelized, depending on your view) approach towards regulations for cryptocurrencies and blockchain projects that seek to take on some kind of Initial Coin Offering as well as Securities Token Offerings.
“Director Hinman’s comments about securities being “sufficiently decentralized” have seemingly been orphaned. We now see multiple approaches taken to token offerings internationally, and see US states experimenting with different approaches- although the domestic state-by-state experimentation is laudable, it has been of limited impact so far. Regulators clearly want federally non-compliant ICOs to remain offshore and away from US investors.”
So is it all good news in the way of developments for blockchain and cryptocurrencies over the course of 2019? Well, we are seeing more in the way of professionalization for various projects, bringing with it all of the institutional investors that come with higher standards being held. But with that higher standard comes with greater scope for regulatory enforcement as well as higher levels of litigation.
“Expect more litigation and enforcement against exchanges of cryptoassets, ICO issuers, promoters, and persons acting without required licensure as broker dealers and syndicators of ICOs in the coming years as the SEC mines the data obtained in response to its subpoena campaign of early 2018 to identify defendants.”
What will act to hinder litigation as well as regulation against cryptocurrencies? One will likely be down to the ongoing issues surrounding the US government shutdown.
“These efforts may be impaired, however, by the ongoing government shut down. As ICOs wound down, domestic fundraisers began to look to compliant tokenized securities. Early versions of these assets resemble ICOs wrapped in securities compliance, providing instruments with restricted liquidity and uncertain legal terms and rights to buyers.”
One of the Attorneys for Seibert Law, Jason Seibert argued that Q4 of 2018 has proven to be an interesting time for cryptocurrencies, both within those involved directly in it as an industry, as well as those that have a more arms-reach relationship with it.
“Q4 2018, also known as the great crypto-winter, saw an interesting shift in narrative and dialogue. While some in the industry continue to rail against regulatory interference, others applaud the possibility of regulatory acceptance with the introduction of the token-taxonomy act (and others).”
One of the holdouts that exists for ICOs, cryptocurrencies and the various blockchain companies that use them continues to be their legal definition within the various countries where these projects may be based or bought.
“Experts continue to argue over the legality of certain types of offerings and ICO’s have all but stopped completely. Many hope that the passage of legislation carving out exceptions for ICO’s will bring a return to the highly speculative industry. Until then, the STO is the new shiny toy, but without adequate or available liquidity in the form of ready exchanges, the success of STO’s remains to be seen.”
The Principal of Smolinski Rosario Law PC, Rosario argues that there has been a wrongful celebration of the latter point of 2018, as though only good times lie ahead for blockchain and cryptocurrency related projects, as though there won't be bumps along the way. Or, worse still, that the crypto winter has somehow abated and simply stopped. Rosario, however, thanks to the contrary.
“For whatever reason, the crypto-community treated the end of Q4 2018 as an event to celebrate. As if the so-called CryptoWinter had passed and nothing but green pastures lay ahead. In terms of the legal and regulatory landscape, the reality seems to be quite different. Regulators began asserting themselves in earnest in 2018, and there is no reason to think they will pull back in 2019.”
We have seen a large number of fraudulent cases come to the public light over the course of 2018, and with the time it takes for legal offices to construct a case, as well as organize the necessary times for court appearances. This means that any litigation brought forward in 2018 will only come together months down the line.
“Similarly, many of the parties that were burned by failed ICOs have only recently begun filing lawsuits and we can expect many more lawsuits in 2019. The CryptoWinter may have just begun.”
According to Rosario, we may very well see a far more bumpy road than the ‘green pastures' that many assume are just coming up in 2019.