How We Will Remember the Year of the Dog? ICO Market Decline, Trend Toward Compliance and Other Takeaways

Happy Chinese New Year! As the Year of the Yellow Mountain Dog has drawn to a close, it is time to look back at what happened.

While there was a promising start in January 2018, when most altcoins were enjoying their all-time highs, the bear eventually took over, and the market delved into the so-called “Crypto Winter.” Nevertheless, there was good news, too: The United States regulators expressed their desire to stick to “positive regulation,” while big league investors poured some funds into a number of promising, compliant crypto projects (mostly stablecoins).

Here is what was happening month-by-month, along with the main takeaways.

January 2018

Japanese crypto exchange Coincheck was hacked, overtaking the infamous 2014 Mt.Gox collapse — an industry-record-breaking $532 million worth of NEM tokens was stolen this time.

Despite the amount of damage, Coincheck has managed to steadily rebound from the security breach. Soon after the incident, the platform announced plans of working toward refunding all 260,000 victims. Coincheck also closely followed the orders of Financial Services Agency (FSA), the domestic watchdog, and eventually secured a license to operate, becoming a fully compliant agent.

February 2018

The Securities and Exchange Commission (SEC) and the the Commodities and Futures Trading Commission (CFTC), America’s two main regulators when it comes to crypto, made positive remarks about the industry before the Senate, making wide adoption and constructive regulation more possible for the market.

On Feb. 6, Jay Clayton and Chris Giancarlo, respective heads of both agencies, held a joint meeting, where they argued that “virtual currencies mark a paradigm shift in how we think about payments,” but remained worried about the uncontrolled nature of ICOs. Giancarlo went as far as to explain the term “HODL” to the Senate.

March 2018

Big tech companies proceeded to prohibit crypto-related advertisements on their platforms. While Facebook had already introduced its ban back in January, social media giants Twitter and Google followed suit in March, introducing similar action.

The blanket bans did some damage to the market. Not only did they deprive industry players of promotional tools, but the also contributed to the stigmatization of cryptocurrencies as a whole.

April 2018

The Reserve Bank of India (RBI) announced that the bank will no longer provide services to any person or business that deals with cryptocurrencies in what seemed like a de-facto ban introduced within a major market. Although there were some signs of recovery since then, the harsh, Chinese-like regulation has stayed.

May 2018

In what seemed like an unexpected twist for a blue chip institution, Goldman Sachs executive Rana Yared told The New York Times that Bitcoin “is not a fraud,” and unveiled plans to trade cryptocurrency. That marked an important step on Wall Street’s path to the crypto market.

June 2018

Jay Clayton, the chair of the SEC, confirmed that Bitcoin (BTC) and Ethereum (ETH) are not securities since they act as a replacement for sovereign currencies. That comment suggested that the agency won’t investigate into the latter’s initial coin offering (ICO) and deem it as unregistered, which would potentially result in large fines and penalties.  

July 2018

July proved to be an important month for regulation in the crypto industry, as two separate U.S. congressional hearings centering the matter were held: One by the House Agriculture Committee, and the other by the House Financial Services Committee.

The meetings struck completely different tones: While the latter echoed some of the most conservative sentiments regarding the realm of crypto — with the obligatory call for a blanket ban — the former appeared more positive, as the board of experts provided the regulators with collected considerations bothering the industry.

August 2018

Crypto market experienced a major plunge, delving into a full-on bear mode, which still stays as of press time. On Aug. 14, ETH alone shedded as much as 20 percent of its value, while BTC lost its $6,500 support.

September 2018

The SEC requested more comments on its decision about the listing and trading of a BTC exchange-traded fund (ETF) created by New York-based firms VanEck and SolidX, which was regarded as one of the top candidates among the community.

Essentially, the regulator showed it wasn’t going to make any decisions on BTC ETFs in 2018, therefore prolonging the hypothetical arrival of Wall Street’s money.

October 2018

Major U.S. crypto exchange Coinbase launched the stablecoin USD Coin (USDC) in collaboration with Goldman Sachs-backed startup Circle, making it the first stablecoin for trade on the platform.

Overall, stablecoins attracted a lot of institutional capital throughout 2018 because of their immunity toward volatility, one of conventional institutions’ main fears regarding the crypto market.

November 2018

A Bitcoin Cash (BCH) network update resulted in a complex battle, and its blockchain was split into two as a result, with BCH ABC and BCH SV being located on opposing corners of the ring.

The latter’s proponents, represented by the likes of Roger Ver and Bitmain’s Jihan Wu, stood for the idea that the basic structure of BCH “does not need any radical change.” BCH SV allies, on the other hand, lead by Craig Wright, the self-proclaimed Satoshi Nakamoto, attempted to restore “the original Satoshi protocol.”

The BCH ABC camp eventually secured the original “BCH” ticker on the majority of digital assets platforms, winning the so-called “hash wars.” Nevertheless, Bitcoin SV lived on as well, and is currently the 11th-largest currency as of press time, according to data from CoinMarketCap.

December 2018

Bloomberg reported on Facebook’s potential expansion into the stablecoins market. More specifically, according to the news agency, the social media giant is developing a stablecoin for WhatsApp users. The cryptocurrency will reportedly be used for money transfers made within the messaging app and will focus on the Indian market.

The move seems somewhat controversial for Facebook, given that the platform has banned cryptocurrency-related ads across its network and then partly backpedaled on it in the past. Nevertheless, if Facebook confirms the news, the crypto market is expected to gain a lot of relevance for the mainstream financial world.

January 2019

The start of 2019 was not optimistic, as the crypto winter continues. On Jan. 28, Bitcoin lost its $3,500 support and stayed mostly below that line for the next week. However, around Feb. 9, it climbed up above the $3,600 mark, while the rest of the market also turned green, showing strong signs of reversal.

Now let's take a look at the main things that happened in separate parts of the market — from ICOs to mining.

ICO market might have died — or at least went into a coma

The ICO market, which was famously booming throughout 2017, took a serious hit.

Even though ICOs raised the record amount in 2018 — $8.27 billion, which is twice as much as in the previous year — the number of coin offerings has been falling since Q1. Moreover, the majority of gathered funds were secured by just two projects: blockchain protocol EOS ($4.2 billion) and messaging app Telegram ($1.7 billion).

There might be a number reasons for the decline. First, the regulators stepped in and questioned the legitimacy of ICOs as a fundraising model. As a result, there has been a “cascade of uncertainty,” associated with the ICO token classification. According to a December statement from the SEC Chairman Jay Clayton, ICOs are currently operating in a way that grants significantly less investor protection compared to more traditional markets.

Indeed, according to a joint investigation published by Yahoo Finance and Decrypt Media in October 2018, the SEC had expanded its crackdown on ICOs, putting “hundreds” of projects at risk. The watchog reportedly found that a great deal of startups had violated securities laws during the fundraising stage, and pressured them to “quietly agree” to refund investors’ money and pay fines.

Also, ICOs have been somewhat stigmatized by the big tech companies, which chose to ban ICO-related ads on their platforms this year. Facebook was first, having prohibited coin offering ads back in January. Later, social media giants Twitter and Google followed suit.

Moreover, ICOs seem to be heavily cashing out as the year comes to a close. As per data from software development firm Santiment, ICO startups had been transacting ETH at breakneck speed, with over 400,000 ETH moving out of wallets during late November to early December.

In a December interview with Bloomberg, Michael Novogratz declared that “the ICO market is pretty much dead right now.” He added, however, that “the SEC doesn’t want to kill this innovation” and that he expects a market for regulated security tokens in the U.S.

He explained that security tokens “aren’t things that go from $1 to $1,000” but are instead “things that yield 14 percent” that will be sold to qualified buyers. “That sounds a heck of a lot less sexy, but you’re going to see that business grow,” he concluded. Indeed, more regulation-oriented fundraising models, like initial public offerings (IPOs), might be next to carry the torch.

Mining became a big boy’s business

In December, AMD’s popular Radeon RX580 graphics processing unit (GPU), which has been widely used by crypto miners, was reported as being sold for $179.99. In comparison, the same GPU unit cost $550 in February, meaning that it has seen a 67 percent price drop throughout the bearish year. Similarly, Nvidia experienced a massive sell-off of its shares in Q4 2018, cutting the stock price by 54 percent due to the drastic decrease in crypto mining’s profitability.

Indeed, as Cointelegraph previously reported, the year-long bear market has had a significant effect on the crypto mining industry, with dramatic drops in revenue forcing many miners to quit the industry and sell off their equipment. Some miners have even started selling mining devices by the kilogram in an effort to recoup losses as their rigs reach “shutdown prices.”

Mining industry professionals switched over from GPU to custom ASICs (as per December, just two mining rigs remain profitable), and large mining pools akin to the Chinese outfit Bitmain and European mining firm Bitfury have taken over smaller-scale miners. Both of the mining companies are now looking to go public and hence further cement their position within the industry.

Compliance became cool

During the Year of the Dog, the market started its steady shift from the unregulated, Wild West-like era to a regulated ecosystem recognized by large financial institutions.

While most countries are still struggling to roll out definite regulatory frameworks or concrete central bank digital currency (CBDC) projects, the SEC and CFTC came in with an iron fist and started to prosecute bad actors.

Having recognized that the rules have changed, new projects on the crypto market are being designed to comply with the law from the very start. Thus, some of most anticipated announcements in the industry include approval of ETFs, which could push crypto toward broader recognition on Wall Street and arrival of Intercontinental Exchange’s (ICE) virtual currency platform Bakkt.

Similarly, stablecoins, which tackle volatility — one of the cryptocurrencies’ chief dilemmas — without compromising their core values ensured by blockchain, seem to attract a significant portion of investment from big league players such as IBM, Andreessen Horowitz and Peter Thiel. Even Facebook is rumored to be developing its own stablecoin at this point.

“Blockchain over Bitcoin” became the traditional market’s favorite view toward crypto

As the compliance trend is steadily squeezing out the concept of anonymity, with its Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, the tech has begun to outshine the underlying cryptocurrency. Consequently, “Blockchain before Bitcoin” has become the go-to policy for countries like China and South Korea, which have either applied strict regulations on crypto trading or banned it altogether, but attempted to create blockchain-friendly infrastructure for fintech startups.

Similarly, financial institutions and large corporations have also been hopping on the blockchain wagon for the past year, with primary examples being Amazon and Facebook, which focused on their blockchain arms this year, as well as Santander, a Spain-based bank that experimented with its blockchain-powered payment network for cross-border payments.

However, as the word “blockchain” itself became overhyped, according to a November report published by Forrester Research, some companies are, in fact, ceasing their use of the term “blockchain” in favor of “distributed ledger technology” (DLT). The study also suggested that many firms are overhyping the usefulness of blockchains or using the name of the technology to repackage existing services, a practice the paper describes as “blockchain washing.”

Further, the report made some predictions regarding blockchain, suggesting a slowdown in the its adoption or a so-called “blockchain winter,” noting that while the technology is making headway, it is still a “cautious progress”:

“On the tools and services side, we’ll witness steady but cautious progress. ‘Cautious’ because DLT hasn’t proven to be a significant, reliable revenue stream for software and service providers, and 2019 won’t be any different.”

Power struggles within the market: XRP vs. ETH, BCH vs. itself, EOS vs. the people

While Bitcoin (BTC) is still king when it comes to market dominance, other cryptocurrencies have been fighting for their spots in the top 10. Most noticeably, Ripple (XRP) has managed to knock Ethereum (ETH) out of its second place during the bear market, while Bitcoin Cash (BCH) has split into two assets, both of which are currently featured in the top 10 as well.

In regard to newcomers, the most noticeable player is EOS, which finished its historically expensive ICO and launched its mainnet in June 2018, swiftly building up its market cap and eventually entering the top 5. However, the relatively new project still has to live up to its hype — EOS has been numerously criticized by decentralization pundits.