There's little chance of any cryptocurrency reaching a new all-time high in 2019. The burst bubble that once brought Bitcoin to within reach of $20,000 and Ethereum to nearly $1500 is a distant memory as Bitcoin hovers around $3,800 while Ethereum trades around $150. It's simply unreasonable to expect such a massive turnaround in such a short period of time.
Historically, there are a few parallels one can look to for comparison. Bitcoin's previous bubble—which pushed the digital currency to a peak of $1200 in December 2013 before it fell to $171—took more than 3 years before the cryptocurrency re-inflated to its 2017 all-time high. And that occurred on significant volatility.
In a more traditional example, it took the NASDAQ Composite 15 years to return to the elevated levels it saw before the dot com bubble burst in the early 2000s.
A new all-time high for cryptocurrencies will either occur two-three years from now, when improved technology can deliver on mainstream adoption and daily usability, or when enough new money enters the arena and spurs a new mania for cryptocurrencies.
Fewer ICOs; More Regulation; Greater Cryptosphere Convergence
Deadcoins.com currently lists 934 defunct coins. Some were outright scams, others were hacked and many just died when their funding dried up. Yet others were a bad fit for the market or had ineffective business models.
Investing.com tracks 2533 coins, up from 1300 a year ago. Growth of potential investment opportunities within the asset class has been remarkable, but much like last year's inflated prices we expect the current number to shrink considerably in 2019.
A lack of investor interest will likely put the kibosh on many new would-be coins. Just as there are fewer initial public offerings (IPOs) when equities are in a bear market, expect fewer initial coin offerings (ICOs) as the crypto bear market lingers. Issuing a new coin in 2017/early 2018 was easy; investors were hungry for the next big thing. But caution is the current watchword.
Dampening ICO prospects yet further, expect much more active regulatory scrutiny in 2019. We briefly discussed some key 2018 rulings in last week's Cryptocurrency 2018 Year in Review. Most recently, charges were filed by the US Securities and Exchange Commission against Airfox and Paragon for violating securities laws. Nonetheless, it took the SEC a year or so to decide on a course of action.
Still, the regulatory agency appears to have finally charted a course for enforcement. As such, expect more charges against ICOs and exchanges to be leveled in 2019. Of course, this may scare away some ICOs as well as potential investors.
Taking this a step further, it's highly likely the ongoing crypto bear market will cause investors to converge on more tested, safer coins such as Bitcoin, or even look for a safer haven via US dollars. This will force coin issuers without perfect treasury management to think twice before heading to market since holding a subset of the same coins one is offering is a deadly gamble in a bear market, unless expenses can be met using that cryptocurrency, which usually isn't the case. More than a few projects—ConsenSys comes to mind—will face the repercussions of failed management in 2019.
A quote attributed to Warren Buffett—who ironically does not like cryptocurrencies—describes the current situation best: “Only when the tide goes out do you discover who's been swimming naked.” Now that the massive cash inflow that once bathed the entire asset class has receded, it's become clear what's working and what's not.
Crypto ETF In 2019?
The SEC has indicated that it will approve a cryptocurrency financial instrument only when there's significant evidence that it is virtually impossible to manipulate the asset class and it's a safe investment for the general public. That means that right now, SEC rules call for much more stability and transparency than the cryptosphere can provide.
Nearly all projects (Bitcoin included) are in the early stages of development, making them less stable than the SEC would wish. As for transparency, one of the central tenets of the asset is privacy, which clashes with the regulatory requirement revealing who the buyers are in order to mitigate manipulation and block money laundering.
Both VanEck and SolidX have proposed over the counter institutional Bitcoin ETFs (which would start at a 25 BTC share size). Each of these seem promising, but there's still no clear proof they can't be manipulated. In addition, given Bitcoin's currently low price (which could still head lower), it could cease qualifying as an institutional ETF, since shares of a few thousand dollars don't make it ‘investment grade,’ but rather, simply retail.
Positive Developments On The Horizon
Even though crypto prices are trending downward, crypto aficionados have not given up on the asset class. There are still plenty of development teams working to build the necessary infrastructure for cryptocurrencies, which will allow Bitcoin in particular, to thrive. Remember that Bitcoin and its peers are still in their relatively nascent stages. Technological limitations continue to require savvy solutions developed by highly literate techs.
On the user side, Bitcoin payments remain slow, though the Lightning Network has helped facilitate a better rate of performance. As well, solutions such as Casa Hodl and Nodl.it aim to provide fully ready, no-coding-required, Bitcoin full nodes, which are essential to the network. Both efforts are primed to grow massively in the coming years.
There are many teams at work on Ethereum too, including to drive a six phase plan that would create Ethereum 2.0, also known as Serenity. This upgrade, with a planned roll-out set to begin in Q4 2019, includes a move away from the proof of work mining model to proof of stake.
It's probable that most of these improvements won't have an impact on crypto markets till 2020 at the earliest. Nonetheless, there is a crypto spring on the horizon.
Clement Thibault is the host of Investing.com's weekly crypto podcast "Cryptalk," available on iTunes and Spotify.