On January 7, the capitalization of the cryptocurrency market reached a maximum of $835 billion, according to the Coinmarketcap. However, there was a significant market correction after this. After the record values in December 2017 price of Bitcoin fell 3 times by the summer. The significant drop was observed in all cryptocurrencies. The capitalization of the market as a whole declined during the year, and in the early beginning of October, it was almost 4 times lower than its value at the beginning of January. Now we see that Bitcoin volatility more than triples on the month amid falling crypto prices. This year was everything, but predictable. Let’s recall with EXMO Crypto exchange Team what else happened during 2018.
It was expected that 2018 will be the year when countries will be determined with the regulation of the cryptocurrency industry and will create the appropriate legislation. Indeed this issue is being actively discussed, and bills are being drafted in many countries on all continents. Some countries are seeking to limit the development of the industry, because of the difficulties in countering the use of cryptocurrency in money laundering and control over the digital assets in general against the background of active growth of the cryptocurrency market. Other countries are seeking to attract representatives of the industry and stimulate its development, seeing an opportunity for their economic growth in this.
Malta is a prime example. On July 4, the country’s parliament passed three bills regulating the cryptocurrency industry and the blockchain, namely: the Digital Innovations Act, the Act on Innovative Technologies, Agreements and Services, and the Act on Virtual Financial Assets. Thus, Malta became the first jurisdiction in the world to provide a legal basis for the application of distributed registry technology.
Earlier, on February 27, the German Federal Ministry of Finance (BMF) signed a decree recognizing Bitcoin as legal tender, equating it to traditional fiat currencies and making it free from taxation. Converting fiat currencies to bitcoins is not taxable. Also, BMF does not intend to regulate the mining industry. Germany has become one of the first European countries that have decided on regulation.
Regulatory discussions at the international level
Regulatory discussions are also held at the intergovernmental level and international organizations throughout the years, in particular at the level of the G-20 (G20). Great expectations were placed on the G20 summit in July in Buenos Aires. It was assumed that specific recommendations on cryptocurrency regulation will be offered. But the presentation of standards for the application of anti-money laundering rules (AML) with respect to cryptocurrencies was postponed until October. If they will occur, they will play an important role in shaping legislation and regulating the cryptocurrency industry of individual countries.
Since the summer, one of the most notable crypto topics has been the question of if the US Securities and Exchange Commission (SEC) will allow cryptocurrency exchange funds (ETF). Waiting for the ETF in the United States is comparable to waiting for the launch of the futures on the CBOE and CME in 2017.
In January, SEC expressed serious doubts about the cryptocurrency price, liquidity, volatility, and related products, and also asked companies which submitted applications for ETFs to withdraw their applications. However, due to the fact that the market has stabilized since the beginning of the year, new bids have been reported since April. Since then, applications have been filed: ProShares, Winklevoss Bitcoin Trust, VanEck and SolidX, Chicago Option Exchange (CBOE), GraniteShares, Biwise, Direxion. SEC managed to refuse to a number of companies applications, but later SEC promised to reconsider their decision, with the exception of the Winklevoss brothers, rejected again after 2017.
For the time, the regulator postponed the decision for as long as possible – until the beginning of 2019. The common opinion is that exchange-traded funds will have a negative impact on the cryptocurrency market.
As an alternative, another similar financial instrument was launched, in August, on the Nasdaq Stockholm exchange – exchange notes (ETN) for Bitcoin, developed by the Swedish company XBT Provider AB.
Banks against cryptocurrencies
Since the beginning of 2018, traditional financial institutions started to limit the opportunities of market participants. Many banks from different countries begin refusing to service the accounts of cryptocurrency companies. Visa payment system has stopped servicing large European cryptocurrency companies. Ordinary customers of many banks have lost the ability to buy digital money using payment cards. The corresponding ban was imposed by the largest banks from the USA, Great Britain, Canada, and Australia.
In April, the Reserve Bank of India (RBI) banned controlled entities from providing services related to digital currencies to private individuals and companies. In this regard, the Indian cryptocurrency exchanges were forced to stop fiat cryptocurrency trading. Late September, the Indian marketplace Zebpay announced the closure of the digital asset exchange service. Similar restrictions were introduced by the Reserve Bank of Zimbabwe, but it was canceled by the Supreme Court later.
Such actions from the financial giants suggest that they began to avoid cryptocurrencies as a dangerous competitor, able to press them at the global level. This year the Bank of America was first who introduced cryptocurrencies to the list of economic, geopolitical and operational risks that threaten the bank.
Parallel with this, there are also movements of the largest banks in entering the cryptocurrency market. Such banks as Goldman Sachs, ING, Barklays and HSBC began cooperating with the largest cryptocurrency exchanges. Moreover, the largest banking conglomerates implement their projects. Below are few examples.
In February, Bitcoin startup Circle, whose main investor is Goldman Sachs, acquired one of the leading cryptocurrency exchanges, Poloniex. The official representatives of the organizations did not disclose the amount of the transaction, but the editor of the Fortune publication Robert Hackett said that the company had paid $400 million for the purchase. Goldman Sachs had invested $136 million in Circle in due time.
The board of directors of Goldman Sachs approved the initiative to create a service for trading bitcoin futures in May. Later, David Solomon, the bank operating director, said that the company is already discussing the creation of full-fledged services to work with cryptocurrencies. Goldman Sachs is also developing a platform for trading OTC bitcoin derivatives. Currently, the company provides clients with the opportunity to trade cryptocurrency futures and contracts for difference (CFD). The bank is also considering launching custody services focused on large funds. In addition, Goldman Sachs led a $ 32 million round of funding for the Axoni blockchain start-up series.
In September Mitsubishi UFJ Financial Group (MUFG) – Japan’s largest financial conglomerate and the fifth largest bank in the world launched the testing of Mufg coin cryptocurrency among its employees in Tokyo. The bank announced plans to introduce cryptocurrency into its payment system in March of this year and later announced that it would begin large-scale testing of Mufg coin in 2019, which would involve 100,000 of its customers in.
MUGF also announced a joint development with the US cloud storage giant Akamai of a “hyper-scale” blockchain payment network, which will provide users with faster and cheaper payments. According to the announcement, the network guarantees to be able to process a million transactions per second in real-world conditions. Also, MUFG planned to launch its own cryptocurrency exchange this financial year, but the launch has not taken place so far.
In October another Japanese financial conglomerate SBI Holdings launches an S Coin token in a test mode. The coin will be available for mobile payments. Orb and Glory Corporation will be partners of the holding. SBI employees will be the first to test the token while calculating in corporate restaurants. During the test, SBI will introduce ATM technology from Glory into the S Coin platform. It will be integrated credit cards and coin wallets. The developers promise that the solution will allow transactions with the rapid conversion of fiat currencies into tokens. Also, the S Coin platform will allow users to issue their own digital coins.
SBI Holdings together with Ripple developed the MoneyTap mobile payment application focused on the consumer segment. The application allows real-time interbank payments using xCurrent technology, which does not involve the XRP token. MoneyTap has already started using several Japanese banks for domestic payments: SBI Sumishin Net Bank, Suruga Bank, and Resona Bank.
On July 17, the Japanese corporation SBI Holdings announced the start of full-scale operation of the VCTRADE cryptocurrency exchange.
This year holding acquired a 40% stake in Taiwanese manufacturer of hardware cryptocurrency wallets CoolBitX, and 12% stake in technology developer for digital markets Clear Markets, also invested in the Japanese cryptocurrency exchange platform LastRoots.
Confrontation from the Internet corporations
Another constraint faced by cryptocurrencies in 2018 is the ban on advertising cryptocurrency projects by such major Internet giants as Facebook, Google, Twitter, Snapchat, Yandex, Baidu, Weibo, Bing. The Chinese messenger WeChat has blocked media accounts associated with the blockchain and cryptocurrencies. Chrome Web Store and App Store mobile app stores banned cryptocurrency apps for mining.
The community began to sound that blocking can be explained by the fact that blockchain and cryptocurrency are a threat to Internet corporations because they offer alternative decentralized solutions and new forms of mutually beneficial cooperation with users based on tokens. However, it is possible that the main reason is the restriction of the activity of cryptocurrency companies in the countries where corporations are registered.
However, Facebook announced a revision of the total ban on advertising cryptocurrency in Jun. And then Google announced that it would allow advertising of cryptocurrency exchange services in Japan and the United States in late September.
Integration with Internet companies
Meanwhile, other Internet companies are seeking to integrate new technologies.
A cryptocurrency wallet was built into the latest version of the Opera browser for Android. Later, Opera decided to launch a desktop version of a crypto wallet. Despite the application only supports Ethereum, ERC20 tokens and collectibles in the format of ERC271 tokens, however, in the future, the developers plan to add support for new cryptocurrencies. It is noteworthy that according to media reports, in July, the leading manufacturer of bitcoin mining equipment Bitmain acquired during IPO 3% of Opera Ltd shares for $ 50 million.
Opera’s competitor, Brave’s cryptocurrency web browser, was downloaded more than 5 million times from the Google Play mobile app store in May, just 6 months after crossing the 1 million download threshold. Brave was created by Mozilla Firefox co-founder Brendan Eychem.
In August, Yahoo added the opportunity to trade Bitcoin, Ethereum and Litecoin on Yahoo Finance, which is popular among traders and other representatives of the financial world.
Japanese Internet giant GMO published a report stating that its operating income in the cryptocurrency sector for the second quarter was 255 million yen ($ 2.3 million) in August. Profit from mining (47%) and exchange business (53%) amounted to 2.6 billion yen ($ 23 million), but operating expenses reached $ 21 million.
Also, instant messengers are actively entering the market.
- Japanese messenger Line Corp. launched a cryptocurrency exchange on the Singapore market called Bitbox in July, and also launched its own blockchain network LINK Chain with a separate cryptocurrency in August.
- South Korean messaging application operator Kakao Corp. is considering the possibility of the private placement to attract investors to develop its subsidiary blockchain company.
- Canadian messenger Kik launched a crypto-economy, with which users will be able to earn and spend the Kin token, and also released a wallet application in July. The ICO Kik ended, collecting $ 100 million in September 2017.
- In July, the Telegram messenger’s team introduced the Passport authorization service, which it is planned to transfer information to a decentralized cloud. In August, an option to log in via Telegram and verification via Telegram Passport was added to CEX.IO. The developers of the blockchain project Zulu Republic presented the Lite.IM software, which will allow users to carry out transactions in the Litecoin network using SMS messages and the Telegram messenger.
The forecasts of the Research and Markets research center are interesting in this context: the blockchain technology can bring telecommunications companies $ 46.6 million in 2018, and by 2023 the amount will be about $ 993.8 million. The distribution of the blockchain in the telecommunications market is due to various factors such as support for OSS / BSS systems and security issues between telecommunications companies. Research and markets predict an 84% annual growth rate of blockchain technology in telecommunications networks.
It is also worth mentioning 2 more major acquisitions in 2018.
The American technology giant Microsoft acquired a well-known web service for hosting IT projects and their joint
development of GitHub in June. The amount of the transaction was $ 7.5 billion.
And in July, the blockchain platform TRON acquired BitTorrent. It is supposed to integrate the TRON protocol into the BitTorrent service, as well as the use of TRX tokens for selling special services and additional options, including increased download speed.
Attracting institutional investors
In 2018, they started talking about entering the market of institutional players. According to a survey by the French consulting company Capgemini, almost half of the owners of large private capital (from $ 1 million) are interested in cryptocurrency investments: 29% of millionaires showed a high degree of interest, and another 27% showed moderate interest. A survey by consulting firm DeVere Group showed that more than a third part of capital owners want to have cryptocurrency in their wallets.
Many companies began to offer a wide range of products targeted at institutional investors. Various companies began to offer custodial services for the cryptocurrency. Like Nomura, Coinbase, BitGo, VersaBank. Coinbase, Intercontinental Exchange (ICE), Caspian, Huobi, Nasdaq, Ernst & Young, Bitfinex, Crypto Fund AG (a subsidiary of the Swiss Crypto Finance Group), LMAX Exchange Group, and many others offer large capital services work in the cryptocurrency market.
Since many institutionalists are often interested in buying/selling large amounts of cryptocurrency, which is difficult to perform on conventional trading and exchange sites, the opening of many cryptocurrency OTC platforms was announced by both cryptocurrency companies and companies from the traditional financial market during the year. In particular, BCB Group, OTCQX, Gemini, Jump Trading, Kraken, Blockchain, eToro.
But the OTC market also attracts other players. Many miners prefer to sell the mined cryptocurrency outside the exchanges. For startups who completed ICO, it is also a convenient way to sell the assembled Fiat cryptocurrency to implement their project.
According to the report of the international research company TABB Group, the over-the-counter (OTC) bitcoin market is at least 2-3 times larger in volume than the exchange one. Considering that the bitcoin exchange market processes about $ 4 billion a day, then over-the-counter, according to TABB calculations, processes more than $ 12 billion a day on a regular basis. At the same time, analysts believe that in the blockchain these transactions are not noticeable since it is not the bitcoins themselves that are moved, but the private keys of the purses.
Largest ICO. The growth of alternative ways to raise capital
Despite the fall in cryptocurrency prices and a reduction in the capitalization of the market, more ICOs were already conducted in 2018 than in the previous one: 741 vs 514 (according to ICOBox researchers as of the beginning of October). And funds raised almost 3 times more: $ 18.16 billion against $ 6.89 billion.
The most sensational was the ICO of the Telegram messenger, which raised $ 1.7 billion during the closed round and abandoned the public stage. The founder of the messenger, Pavel Durov, considered that the funds collected were sufficient and there was no need for a campaign open to the general public. Although earlier media reported that the project was going to raise $ 3-5 billion.
ICO Telegram can be considered the largest this year, if you do not take ICO EOS into account, which began in June 2017 and lasted exactly one year. During this time, EOS collected $ 4.2 billion. This is not only the most successful fees in 2018 but also in the whole entire history of the primary issue of coins.
However, many analysts believe that ICOs are losing popularity. According to the Diar research group, 70% of ICO tokens today cost less than during sales. Most tokens have fallen in price by more than 90% of their peak values. Diar believes that this has contributed to the growth of attracting venture capital to blockchain and cryptocurrency startups. In the first three quarters of 2018 alone, venture capital investments amounted to $ 3.9 billion, which is 280% more than in all of 2017. At the same time, the number of investment transactions for the incomplete 2018 almost doubled.
In addition, some companies began to offer alternative forms of attracting investments in case of the fact that many ICO organizers showed bad faith or turned out to be frauds. So, they talked about the initial offer of security tokens (Security Token Offering – STO) as a safer way to raise funds. Although potentially STO can bring the entire blockchain industry to the level of the global stock market, it has not yet become widespread, and only a few cases are known. Among them are Good Money, Spin, and Overstock tZERO.
Cryptocurrency companies go IPO
Considering the above, and not embarking on the fact that ICO is a simpler and faster way to attract investments for startups, many cryptocurrency companies in 2018 decided to turn to traditional methods and started talking about an IPO. Probably, another reason is that the IPO guarantees a higher security of investments, which means it attracts more capital. But so far in 2018, only one participant in the cryptocurrency market managed to hold an IPO, the rest only submitted applications or reported such plans. First of all, companies associated with the mining of cryptocurrency distinguished themselves.
In early August, the IPO of the British mining company Argo Mining PLC, which offers its users the possibility of remote mining of cryptocurrencies, passed. The company managed to raise £ 25 million (about $ 32.5 million).
The largest mining company Bitmain submitted a listing application for an initial public offering (IPO) to the Hong Kong Stock Exchange (HKEX) at the end of September. The listing will take place either in the last quarter of this year or the first quarter of 2019.
Publicly traded Canadian holding firm GoverMedia Plus Canada will acquire U.K.-based crypto exchange EXMO per a recently signed a Letter of Intent (LOI), according to a joint announcement published in November. Upon the completion of the transaction, the joined entity will continue to conduct business on the EXMO platform and will be listed on Canadian and Frankfurt stock exchanges.
A major Chinese manufacturer of mining equipment, Ebang Communication, also submitted a preliminary application for conducting an initial public offering on the Hong Kong Stock Exchange (HKEX) in June. The company expects to attract up to $ 1 billion during the initial public offering.
Ebang Communication, another Chinese company Canaan Creative, the second largest manufacturer of mining equipment, also expects to receive the same amount. He also submitted the corresponding application to HKEX at the end of May.
According to Coinmarketcap Tether overtook Ethereum and EOS in daily trading volume, ranked second, following Bitcoin in June, and continues to hold on to its position, despite constant criticism and numerous doubts about the presence of actual fiat reinforcement, as well as suspicions in market manipulation.
The idea of creating a digital currency with a stable price became especially popular in 2018. At the same time, large companies seek to offer their stable cryptocurrencies or invest in such kind of startups. Here are some of them:
Stable cryptocurrency Basis with an algorithmic central bank. As reported in April, the project raised $ 133 million.
Decentralized payment service Havven has released the eUSD, an ERC20 standard token provided by Ethereum for use in the Ethereum blockchain. The company released a dollar-backed nUSD in June, .
In March, a TrueBD stablecoin provided by the dollar and issued by the TrustToken asset-tokenization platform began to be added to the stock exchanges. Later, the platform managed to attract $ 20 million in the course of strategic tokensale, which several large venture capital corporations took part in, including Andreessen Horowitz (a16z), BlockTower Capital and Danhua Capital.
The stable Reserve coin provided by the dollar was supported by over 40 investors, including well-known businessman and hedge fund manager Peter Thiel, Coinbase, Distributed Global and GSR.IO. The Reserve managed to attract $ 5 million in investments, in the first round of financing.
Startup Stronghold announced the launch of the stablecoin USD Anchor on the Stellar blockchain in July. The leading role in the project is played by the technology giant IBM.
Terra Alliance, a group of e-commerce sites, intends to introduce stablecoin Terra into its business. The project has collected about $ 32 million.
Especially many projects were presented in September (9 pieces):
Gemini’s Winklevoss Brothers Bitcoin Exchange has announced the launch of a dollar-bound, stablecoin Gemini Dollar (GUSD), based on the ERC-20 standard. A custodian of client funds was made by one of the US banks, and the issuer was the Gemini Trust.
The Paxos blockchain startup presented stablecoin Paxos Standard, the value of which is also pegged to the US dollar. Representatives of the project claim that the new asset received approval and support from the State of New York, and its turnover will be regulated by the Financial Services Authority of New York (NYDFS).
Swiss crypto startup Eidoo launches its own stablecoin in the form of an ERC20 token called Ekon, which will be used in its multicurrency wallet and on a decentralized exchange. Each Ekon token can be redeemed with 1 gram of 999 gold.
Cryptocurrency startup Circle, which owns the Bitcoin exchange Poloniex, announced the launch of the tokenized dollar USD Coin (USDC).
Startup London Block Exchange (LBX) has announced plans to launch a new stablecoin tied to the British pound exchange rate.
One of the oldest cryptocurrency exchanges in Australia, Bit Trade and the Emparta blockchain platform, which is engaged in digitizing the recruitment process, are planning to release their stablecoin, linked to the Australian dollar rate, in 2019.
The Xiong’An (Grandshores) blockchain fund with assets of $ 1 billion, supported by the Chinese authorities in Hangzhou, plans to issue a stablecoin tied to the Japanese yen.
The Swiss asset management company Tiberius Group AG is preparing to launch the Tiberius Coin cryptocurrency, provided with a basket of metals.
Also, blockchain start-up Carbon announced the launch of a “stable cryptocurrency” pegged to the US dollar. According to them, the ERC-20 based Ethereum-standard token has been available to institutional investors, hedge funds, traders and exchanges since September 12.
In October, the Japanese IT giant GMO Internet announced the launch of its own stablecoin, which will be pegged to the yen.
Gemini Dollar, Paxos Standard, USD Coin immediately became actively flipped on cryptocurrency exchanges. Therefore, it can be expected that they will indeed be a serious competitor to Tether, which has a tarnished reputation.
The largest attacks on cryptocurrency exchanges
In 2018, there were two major attacks on the cryptocurrency exchanges. Earlier, in the entire history of a larger attack was made only on Mt.Gox in 2014.
8 billion yen ($ 533 million) in the NEM (XEM) cryptocurrency was stolen from the Coincheck Japanese cryptocurrency exchange in January. The attack on the exchange led to a tightening of regulation of the cryptocurrency sphere in Japan, and in the particular control over the cryptocurrency exchanges. The official ban of the Financial Services Authority of Japan (FSA) on the use of anonymous cryptocurrencies, which include NEM, came into force on June 18. It was filed several class lawsuits from the affected traders against the exchange. Nevertheless, in April, Coincheck acquired the online broker Monex. The deal is valued at 3.6 billion yen ($ 33.6 million).
The Italian BitGrail crypto-exchange announced the theft of 17,000,000 XRB (Nano / RaiBlocks) as a result of “unauthorized transactions,” which was more than $ 170 million at the market rate In February (at that time). Due to the loss of funds, the exchange was forced to declare bankruptcy.
It is noteworthy that with the fall of the market, the number and scale of attacks on cryptocurrency exchanges declined.