Bitcoin’s terrible 2018 doesn’t bode well for the future of crypto

If someone approaches you saying that they have a way to get rich, quick, without any effort, then they’re scamming you. If you don’t believe me, then ask yourself this: If someone gave you a winning lottery ticket, would you hand it over to someone on the street? People get itchy when it comes to paying their taxes, let alone handing out bagfuls of cash on the sidewalk.

That didn’t stop some people from ploughing cash into cryptocurrencies in search of a fast buck. I mean, I get it: Savvy operators were hoping to wait a few weeks, see the value rise and get out. But in order to get out, you need a mark with pockets deep enough to buy your stake and take on the risk for themselves. Sadly, for those looking to make a quick buck, 2018 was the year that people wised up, regulators got their act together and disharmony warned everyone else away.

This year was one big cryptocurrency crash that left a trail of blood across the industry. Bitcoin, the pioneer, saw its value drop from $19,352 on December 17th, 2017, to just $3,360 on December 12th, 2018. Ethereum fell from $1,405 on January 10th to $88.71 on December 12th. Other ventures, like Bitcoin Cash and Ripple, too, saw slides in their value against the dollar.

As all the major cryptocurrencies saw their values collapse, several crypto-focused startups were forced to close. Earlier in December, Bloomberg reported on a number of companies that, by holding assets in crypto, were pretty quickly wiped out. And with values (and potential returns) diminishing, few investors were willing to hand over more cash to keep them afloat.

This has been felt by the mining companies, which spent big on equipment and resources to set up their crypto-mines. In November, CoinDesk reported that up to 800,000 mining machines had been shut down due to the falling price. Big names, like the US company Giga Watt, collapsed still owing millions to creditors like the local utility. After all, mining is famously energy hungry and potentially climate troubling.

True believers say that this isn’t evidence of a bubble bursting, just a correction that we often see in currency markets. All you need to do is keep HODL-ing — refusing to sell your assets no matter the fluctuations in the market — and waiting for the rebound and even greater riches. But it’s hard not to wonder if any rally will be minor and if the times when 1 BTC cost close to $20,000 are over.

True believers say that this isn’t evidence of a bubble bursting, just a correction that we often see in currency markets.
It feels different this time, with the SEC making clear that it sees Initial Coin Offerings (ICOs) as under its jurisdiction. ICOs are, like IPOs, ways for people to raise money on the back of an offering, with the coins being traded. Thanks to Ethereum, rolling out your own ICO is easy enough that it’s been a target for people with less-than-honorable intentions. According to one study by the Satis Group, around $1.3 billion had been invested in fraudulent ICOs by July of this year.

Even the legitimate offerings have no guarantee of a long life, however, and another study found that “good” coins often collapse after a few months. In September, a New York court ruled that some ICOs came under securities law, with several more cases being waged. SEC chief Jay Clayton told CNBC that “if you want to do any IPO with a token, come see us.” But if crypto falls under the aegis of government regulation, then what’s the point of it?

The crypto community hasn’t helped, with paranoia over the potential fortunes at stake causing fractures and infighting. Bitcoin, for all of its sophistication, was so poorly engineered that the more popular it grew, the less usable it became. This was true as far back as 2016, when block sizes were artificially kept small, apparently to appease Chinese miners. Refusing to deal with the issue caused a chronic slowdown in validation speed that made it ever more useless as a functional currency.

 

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