Is it time to invest in cryptocurrency?

Source: Statista. Bitcoin price index from November 2016 to November 2018 (US$).

Cryptocurrencies underwent a lot of growth in 2017, but not so much in 2018. Is that boom and bust? A number of cryptocurrency players weigh in:

Source: Dash. Taylor.

“The market cap of the entire sector is now the same as it was in September of 2017. What is often overlooked is that use continues to grow and innovation remains robust by nearly any measure. Bitcoin’s transaction count is now the highest it’s been since January. Dash - the project I support - has seen transaction counts double over the past year even as prices have declined. Silently, speculation is ceding to real-world use.

“Nonetheless, speculation and price volatility abound in the cryptocurrency space, and yes, quite a number of questionable projects will fail next year. The same could be said of the dotcom bubble at the turn of the century. Yet even as the market prices of internet stocks were crashing, Internet traffic continued to rise and businesses continued to build better online experiences. I believe we are witnessing a similar story play out in cryptocurrency today. If cryptocurrency truly were a 'flash in the pan' Ponzi scheme, as many detractors would have you believe, transactions would not have continued growing when encountering the headwinds of a falling market.

“I believe that 2019 will see a continuation of adoption, innovation, and exploration of new use cases. There will be a massive number of failures and a handful of incredible successes along the way. Many painful lessons, and many new models for success will emerge from these results. Digital assets are clearly not for the faint of heart, but they are aren’t going away as long as people value financial freedom, privacy, and independence. Needless to say, I don’t think cryptocurrencies are going away anytime soon.”

- Ryan Taylor, CEO of Dash Core Group

"There were significant technological advances throughout 2018, particularly in the privacy space – where we saw the first implementations of bulletproofs in cryptonote coins result in a 90% reduction in transaction size and a 95% reduction in fees.

Source: Loki. Jeffreys.

"In 2019, treasury management is going to become a very important aspect of all cryptocurrencies’ outlooks. Projects that raised at the all time high of the cryptomarkets and did not liquidate into fiat or diversify into stablecoins will now be feeling the pinch as their initial raise will have seen a loss of up to 90% of its initial value.

"We have already seen prominent projects in the space cut staff, with Steemit having to let go 70% of its employees due to the bear market hitting new lows. If the bear market continues, many ICOs will have to face the same reality. It's unclear if this will stifle innovation, perhaps what ICOs need the most is not money, but the conviction and clear ideologies which often produce the most innovative ideas.”

- Kee Jeffreys, Co-founder and Tech Lead at Loki

“Regardless of the upcoming advent of tokenised securities, I see a promising future for utility tokens. Utility tokens will play an important role in capital raising for censorship-resistant, and distributed applications, with prediction markets and distributed computing being some of the applications already underway.

Source: Brave New Coin. Delfin.

“With regards to market saturation, both evolutionary and market dynamics will dictate the fate of the cryptocurrency ecosystem. Crypto assets with the strongest network effects will certainly dominate the space, while undifferentiated assets could fade away. These are still the early years of a nascent asset class.

“2019 is poised to be the year of tokenised securities, meaning that the underlying technology might be the one taking the centre stage next year. However, it would be unwise to leave the first killer app, cryptocurrency, of the underlying technology out of the picture.”

- Raphael Delfin, Head of Research at Brave New Coin

“There is a future for utility tokens, but such tokens will come from protocols with broad possibilities and large infrastructure, not so much on the niche utility-for-a-single-service side. The next bull run will likely be built on securities token offerings (STOs) in which regulated businesses tokenise large swaths of known asset classes, or even equity in small to medium size ventures that enter the crowdfunding space.

Source: Horizen. Viglione.

“The dominant pressure will be less stable projects going away until we see a broad market recovery. This is already happening with smaller projects simply ceasing any development and closing shop. Some big projects are announcing large reductions in personnel and growth activities, so everyone is affected. Consolidation in terms of mergers and acquisitions would be an interesting new dynamic in this industry. Maybe in the next market cycle we’ll have more mature organisations that can use mergers and acquisitions (M&A) to grow in such a downturn.

“Bitcoin has already changed the world as a currency, that realisation is just not so evenly distributed! What we’ll see in 2019 is continued development of a new type of public infrastructure. The private applications of Blockchain technology will continue development, but expect rather limited marginal impact. We still need to make all these systems more secure, scalable, and better governed.”

- Robert Viglione, CEO and Co-Founder of Horizen

“The future of cryptocurrency is certainly a dynamic one; despite current conditions, 2018 saw endorsements from traditional financial powerhouses such as Fidelity and Nasdaq, which will naturally provide a huge push for cryptocurrencies in the new year.

“As institutional investors, high net worth individuals, and family offices continue to monitor and take cryptocurrency seriously, and with regulators working to improve standards and guidelines for adoption, I expect that the market will mature in parallel. If the industry can continue to shift gears and direct its attention towards this narrative of growth, I think it’s very likely that we will see a comeback in 2019.

Source: NGC. Lim.

“In a bull market, there’s always a greater opportunity for quick wins, so naturally more cryptocurrencies and Blockchain-based projects emerged in the market at its peak, with companies and investors acting in fear of missing out.

"However, the benefit of operating in today’s bear market is that, more often than not, projects now come with good intentions and understand the importance of developing compelling use cases, building strong leadership teams, and making continued improvements in order to demonstrate their validity. With competitiveness rising, the Blockchain industry is bound to undergo some sort of consolidation and the projects best equipped with a 'survival of the fittest' mentality are the most likely to succeed.

“We will also see increased commitment to academia. Higher education institutes such as the University of California, Berkeley and National University of Singapore’s CRYSTAL (cryptocurrency strategy, techniques, and algorithms) Centre, are already involved in R&D and nurturing developers needed to propel the entire Blockchain ecosystem.”

- Roger Lim, Founding Partner at NEO Global Capital (NGC)

“I think 2019 will be a more stable year for cryptocurrencies, I expect that some of the regulatory uncertainty will be resolved, opening the door to companies who’ve been interested but reluctant to get involved with cryptocurrency and Blockchain previously.

“I expect that the major cryptocurrencies will make advancements in both on-chain and layer 2 scaling, improving their usefulness and reducing the need for altcoins, the number of which I expect to massively decline over the next 12 months. In terms of price, I’ve been in the space for over five years and couldn’t call it. I would hope that as use cases and capacity increases, so too does adoption.”

- Oliver Carding, Co-Founder of Crypto Kaiju

Source: Zilliqa. Dong.

“On the cusp of every new year we ask ourselves ‘will this be the year we witness mainstream adoption?’ Although I would not promise that 2019 is the year, we will see a wave of widespread use cases in 2019 as organisations looking to implement and develop Blockchain applications become more focused. So it is very likely that we will see some compelling use cases emerge.

“I envision tokens that bring real value-add for users to lead the charge in 2019. For example, I think tokens that award users for content generation and community participation, tokens that enable decentralised payments, and tokens that drive low-cost smart contracts have huge potential.

“As entrepreneurs and enterprises introduce and implement Blockchain technology, a major stumbling block the industry faces is the balance between scalability and security. 2019 may indeed be the year we address the existing challenges, see traction for the technology beyond the testnet phase, and welcome many far-reaching dApps.”

- Xinshu Dong, CEO of Zilliqa

Source: Wachsman. David Wachsman.

“We will see consumer-grade dApps deployed far beyond the traditional borders of the crypto ecosystem and mainstream financial services institutions going into production with well-tested Blockchain infrastructure.”

- David Wachsman, CEO & Founder of Wachsman

Glossary:

Altcoin: cryptocurrency that isn't Bitcoin.

Bear market: a bear market is one where prices are falling or on their way down. In contrast, a bull market is a market where the prices are rising or on their way up.

Bulletproof: a way to shrink the size of confidential transactions in cryptocurrencies.

DApp: a decentralised application, typically run on a decentralised network with trustless protocols.

ICO: an initial coin offering, similar to an initial public offering (IPO), where investors help a cryptocurrency issuer raise funds by buying tokens. Tokens can change in price after the ICO. They can serve different uses, depending on the issuer of the ICO, but only after they decide that the project has prospered enough to do so.

Layer 2: a wave of advanced solutions that would allow many more cryptocurrency transactions to take place in real-time without the whole system slowing to a crawl or making transactions cost much more.

Network effect: A cryptocurrency can be valued in terms of the number of network nodes it can command. Such a node can be a user of that cryptocurrency. If only one person holds that cryptocurrency, it is useless. There need to be enough users so that transactions in that cryptocurrency can take place meaningfully. The more users there are, the more valuable the service is to everyone using it, and the more attractive it is to potential users – the number of users on Facebook is an example of this. At some point enough users attract more users and more places which are willing to accept the cryptocurrency and so on, which could make it difficult for other cryptocurrencies to gain marketshare.

On-chain transactions: transactions that are recorded on the Blockchain.

Ponzi scheme: a scam which sounds too good to be true. Early investors are paid high returns from the money invested by later investors, as opposed to actually growing the investment.

Stablecoin: a cryptocurrency that is designed to have a more stable price, for example by being pegged to the value of something else, like a conventional currency.

STO: Security token offerings have been proposed as a better way to raise funds compared to ICOs. A security token promises some form of ownership in the issuing company or its assets.

Trustless: The distributed, secure and transparent nature of Blockchain means that there is no need to trust individual parts of the system while trusting that the transactions will occur and be verified.

Utility token: Utility tokens are sold during an ICO and come with a promise that they can be used to buy goods and services offered by the company behind the ICO. The tokens can end up useless if the cryptocurrency project fails.