The last few years could rightfully be described as a rollercoaster when it comes to cryptocurrencies. Bitcoin became a household name overnight, and just as quickly, its bubble burst. Initial coin offerings (ICOs) enjoyed a boom but now their success is dwindling. Meanwhile, security token offerings (STOs) and other breakthroughs are vying to fill the void.
To navigate and understand where the cryptocurrency market is headed, I spoke to Anatoly Radchenko, the CEO of United Traders, which is an advanced investment and financial services company. At the age of 28, Radchenko was named the Best Private Investor twice and started a hedge fund. He has significant experience with financial markets in general, and a unique first-person perspective on trading cryptocurrencies.
Over the past year and a half, the crypto industry has become quite well-known. What happened?
“The period from 2016 to 2017 was the most interesting in the crypto market. ICOs appeared on the scene, and everyone had very high expectations. These prospects are still there today, but are much more grounded. In the beginning, expectations were too high, and were in a very short timeframe. That is why everyone quickly became disillusioned and the bubble burst—and why 2017 was very difficult for all traders. Even with top funds like Novograts and Pantera Capital, investors lost about the same amount as if they personally held bitcoin”.
Radchenko explains that in traditional markets, not all assets are correlated with the market—but with the crypto market, all assets fell alongside it. It was difficult to find a safe haven. So 2017 taught traders, especially new ones, that the markets are quite volatile. Many traders used leverage, which led to large losses and eventually to the elimination of all positions. They came with high expectations for a quick profit—and it did not quite pan out – he added.
Can we expect a rebound in the market?
“I think that the drop is a good thing, because a drop in value will ultimately lead to a decrease in volatility. When a large number of people have at least one bitcoin each, they press the button and the losses snowball. Now, though, most bitcoins will once again belong to large holders. This will reduce the circulation of bitcoins in the market, which in general should stabilize the markets a little bit. Such a strong drop also made investments possible for many serious players who were suddenly able to afford it”.
Radchenko is circumspect on what will happen next since, of course, everyone has different predictions about what will happen with cryptocurrencies—to the point that many experts are sick of being asked what they think at all. Wall Street’s main advisor has said he is tired of forecasting crypto, and recently wrote on Bloomberg that he is refusing to comment on the topic.
“We even decided to make a little joke out of it with a fun, quick quiz where anyone can predict what comes next”, Radchenko adds.
Do you think cryptocurrency prices were manipulated—and if so, by who and how?
“In principle, when the price was at $6,000, everyone understood that, okay, someone buys, someone sells. But with sharp movement from $6,000 to $3,000, many people got knocked off track. And it happened without any significant events. I do think Tether and Bitfinex, which are being probed by the Department of Justice, are at play here. I also think this may be some kind of manipulation by the same bitmix”.
Radchenko explains that a bitmix is an exchange which accepts only bitcoins. It is very easy to register. Most people—let’s call them gamblers—switched to this platform and there was high turnover. If you look at the volume on the bitmix, the total could reach 5 or 6 billion a day relative to the volume on the Binance and Bitfinex exchanges. So it turns out that we find ourselves in a situation widely talked about in classical markets: the volume of derivatives, which in one way or another indirectly affect the underlying asset, or spot price of the asset itself, is much higher. This holds true for gold and oil too. And with crypto, we do not have regulation or a central supplier, so prices differ everywhere. There is a lot of systemic and financial risk.
What are some rules for investing in crypto?
A great rule is to try to invest in large projects, because money tends to go toward money—that is, projects with good marketing. Another good rule is that there is no need to try to guess the bottom. It is better to allocate your assets evenly and in equal parts into different projects, because, once again, the price now does not reflect anything. As we recently saw, iOS just grew 30% in a day. Why did this happen? Nobody knows. And you will never guess whether it will start growing today or tomorrow. It is necessary to be patient and not try to look for the bottom.
With regard to the challenges traders faced in 2017, it’s hard to be happy when people lose money because of their inexperience. But the most important thing a trader must understand is that, even if he has been mistaken when it comes to his predictions and transactions, all is not lost. The market will be there tomorrow and the day after tomorrow and in a year. A trader must always have a margin of safety (or cash) in order to somehow correct a situation that has gone wrong. Do not go all-in and expect instant results. Gamblers get mowed down.
How do scam projects affect the industry and the value of currencies? Do a large number of them affect the cost of other cryptocurrencies?
Scam projects have always existed and will always exist. Most people try to focus on good projects, but there have always been both bad and good projects and novice investors might not be able to tell the difference. But I do not think most projects that failed were necessarily the result of organized criminal groups, for example. They did not intend for the funds to disappear. A lot of guys who raised money for ICOs had no background building businesses, and knew nothing about corporate culture or hiring staff, much less how to conduct B2B and B2C relations. They just had an idea, investors invested a lot of money in the idea, and the idea did not go anywhere. Plus, the crypto market fell. It was kind of a game, and they lost. I do not think most people wanted to throw their investors under the bus.
What trends await us in 2019? Maybe some that will be transferred from 2018 and so on?
The first is the development of various protocols, services, and chains for bitcoins, like Lightning. These are faster, reliable, simplified ways of banking and the user experience will only continue to improve in 2019. The second is the emergence, I hope, of the framework for security tokens. When companies collect money, they can only issue tokens a year later, so this year we will see how Telegram tokens, for example, will behave. Also, as services like Facebook have their own internal currencies (like it’s said to be creating for WhatsApp transfers) it will drive adoption so that people start to understand how, say, the Facebook cryptocurrency differs from Bitcoin, what decentralization is in general, and why it is needed. Finally, we will also see the use of blockchain technology by corporations.
Can you talk about how the ICO boom happened and whether it will happen again?
It can easily happen again, but it will just be called something else and have another mechanism. The rules will change a little bit, the names will change, the marketing will change, and the boom will repeat. I think security tokens will be the next boom.
And what is the importance of security tokens now for the industry?
The fact that your rights are described, and, roughly speaking, the company has some responsibility. These security tokens can have dividend distribution properties, they can have voting properties — that is, they can have properties like a security, but they can be stored and transmitted to each other like tokens.
With security tokens it is always clear how many there are, where they lie, who they lie with, how to find a buyer, seller, etc. It will help to make the market liquid and transparent. That is, it can lower the barriers for medium investors to invest during the earlier stage of a company. As a rule, all the best companies look at how they can attract Google Ventures, Andreessen Horowitz, Sequoia, and so on. But security tokens can also drive the democratization of investments in good companies.
How will current utility tokens, including security tokens, be regulated in the future?
This is actually, probably, one of the most difficult issues, and, in my opinion, no one knows, and everyone is waiting for that answer. I think the Security and Exchange Commission should listen to other regulators from other countries and figure it out. They cannot simply talk about how thing should be.