Bear Market Birthday: The Crypto Bubble Popped One Year Ago Today

One year ago today, the crypto bubble reached its fever pitch before the inevitable crash that occurred throughout the remainder of 2018 and has lingered into the new year.

Crypto Market Down 84% on Anniversary of All-Time High

One year ago today, the crypto market cap peaked at just under $835.7 billion. | Source: CoinMarketCap

According to CoinMarketCap, the cryptocurrency market cap — which measures the combined notional value of all cryptocurrencies — reached $835.7 billion on Jan. 7, 2018 at approximately 11:17 UTC.

At one point, the aggregate value of cryptocurrency tokens in circulation rivaled South Korea’s M1 money supply. | Source: CIA World Factbook

That meant that, at least on paper, cryptocurrency as an investment class was worth more than Facebook and Twitter — combined — as well as the narrow money supplies of all but eight countries.

The cryptocurrency market cap declined sharply in Jan. 2018 to begin a gradual downtrend that continued throughout the remainder of the year. | Source: CoinMarketCap

Today, however, the cryptocurrency market cap sits at just $136.3 billion, representing an approximate decline of 84 percent. Even more remarkable is that this occurred even as the number of crypto projects tracked by CoinMarketCap has swelled to 2,086.

Ripple Worth More in Jan. 2018 than Entire Crypto Market Cap Today

Notably, the cryptocurrency peak occurred several weeks after market bellwether bitcoin first fell into decline. The introduction of bitcoin futures in mid-December seems to have punctured the bitcoin price bubble, as the flagship cryptocurrency peaked near $20,000 just days after its futures contracts began trading on regulated US exchanges CBOE and CME.

However, that capital did not flow out of the cryptocurrency markets, at least not at first, because the altcoin bubble continued to inflate at a wild clip through late December and the first week of 2018.

Bitcoin’s share of the crypto market cap cratered in January 2018 as ripple (XRP) and other altcoins resisted the pull of the bitcoin price decline — at least for a week or two. | Source: CoinMarketCap

That bubble was largely driven by the price movements of ripple (XRP), which became the poster child for retail-driven speculation even as its backers sought to market it as the suit-and-tie cryptocurrency built for banks and other financial institutions.

Ripple was particularly popular in the South Korean market, where the “Kimchi Premium” drove the token’s global average as high as $3.84. On Monday morning, the ripple price was sitting at $0.366, representing a one-year decline of more than 90 percent.

The ripple price peaked at a global average of $3.84, driven by rumors of a Coinbase listing (which still hasn’t happened) and South Korea’s “Kimchi Premium.”

At its peak, ripple — then the second-largest cryptocurrency behind bitcoin — had a market cap of nearly $149 billion, which is more than $13 billion more than the total crypto market cap today.

Of course, ripple wasn’t the only cryptocurrency to take a 90 percent or greater buzz-cut from its early 2018 peak. Other major coins and tokens also holding that dubious distinction include bitcoin cash (96 percent), litecoin (90 percent), tron (92 percent), cardano (96 percent), monero (90 percent), dash (95 percent), NEM (97 percent), NEO (96 percent), and zcash (94 percent).

Searching for Crypto Winter’s Silver Lining

Advances in the Lightning Network and other scaling technologies shows that the crypto bear market has not been a fruitless time for the industry.

Needless to say, 2018 was a tough year for investors. However, it wasn’t all bad for the cryptocurrency ecosystem as a whole. The bear market forced investors to eye projects with greater scrutiny, and regulatory crackdowns have all but killed the initial coin offering (ICO) market but will hopefully result in new legislation that promotes true innovation while protecting investors from fraud.

Most importantly, the bear market did not stop developers from continuing to build out the technologies that will help bitcoin and other cryptocurrency networks scale to accommodate mainstream adoption, whenever that does arrive. The Lightning Network (LN), for instance, has continued to see its total capacity grow, despite the fact that the bitcoin price has been in decline. Moreover, the median bitcoin transaction fee has fallen to a more than three-year low, even as the network processes about 75 percent more payments on a daily basis than it did the last time fees were this low.

That’s not to say the work is complete. Fraud is still far too common in the crypto industry, and many much-hyped applications of blockchain technology have yet to demonstrate to utility compared to their centralized counterparts. And somehow, $700 billion in losses later, many projects still seem overvalued. (Dentacoin — “The Blockchain Solution for the Global Dental Industry” — has an implied market cap of $64.9 million.)

Nevertheless, as investors await the next great bull run, the industry will hopefully emerge from Crypto Winter as a more mature ecosystem, one better prepared to establish itself as more than a passing fad.


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Author: Josiah Wilmoth
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Bitcoin Is 10 Years Old — Here’s a Look Back at its Crazy History

Halloween 2018 marks the 10-year anniversary of the foundations of bitcoin, the world’s first cryptocurrency, an asset that can fairly claim to have altered perceptions of what can truly be considered an asset in financial markets.

A decade ago today, bitcoin’s mysterious founder Satoshi Nakamoto published a nine-page long academic style paper called “Bitcoin: A Peer-to-Peer Electronic Cash System.” The paper would go on to act as the founding text for the cryptocurrency, and lead to the first bitcoin transactions being carried out in early 2009.

It’s impossible to say how much bitcoin has increased in price single its earliest incarnation, because its value back then was in the fractions of cents. A conservative estimate, based on bitcoin’s current price being around $6,300 per coin, and its early price being less than $0.01, would see bitcoin’s value increasing more than 1 million fold in the last decade.

2008-2010: The early years

The first bitcoin transactions were carried out in private, so no one really knows when or how numerous they were, but the first trade is believed to have been between Nakamoto and developer Hal Finney. Many have speculated that Finney, who died in 2014, may actually have been Satoshi.

Bitcoin adoption grew slowly at first, with the cryptocurrency first fetching mainstream attention in May 2010 on a day that has since become known as “Bitcoin Pizza Day.”

It was May 22, when the purchase of the two Papa John’s pizzas by Laszlo Hanyecz from another bitcoin enthusiast marked what is believed to be the first “real-world” bitcoin transaction. Hanyecz traded 10,000 bitcoins for two large Papa John’s pizzas, a sale now worth around $63 million.

2013 Onwards: Mainstream appeal

Bitcoin’s journey continued slowly at first, but it hit the mainstream in 2013 after the first of several hyperinflation incidents occurred in the currency. In late 2013, the cryptocurrency spike in value from around $100 per coin to $1,000 in just over a month, before halving in value over the next three or four months. Bitcoin would not hit $1,000 again until 2017.

The spike, however, drew mainstream media attention, with Business Insider’s Joe Weisenthal penning a now well-known op-ed titled “I’m Changing My Mind About Bitcoin”— having just weeks earlier called bitcoin a “joke.”

For the next three years, bitcoin stayed in a range of around $400 — never trading above $650 or much below $250. The most notable event during that time was the collapse of Mt Gox, the first ever exchange, which filed for bankruptcy protection after hackers stole nearly $500 million of bitcoin, and a further $30 million of cash deposits.

The hack, still the largest ever in the crypto space, exposed massive security flaws, and exacerbated bitcoin’s reputation as a Wild West asset with little to no financial protection for its users.

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The history of bitcoin prices from 2013 onwards.
 

2017: The bitcoin bubble inflates

After three years of relative calm, bitcoin truly hit the mainstream in 2017, a year which saw the cryptocurrency increase in value from around $1,000 per coin to almost $20,000 per coin in a matter of months.

Part of the spearhead for that huge jump in value was the bitcoin “fork” which saw bitcoin split into bitcoin and bitcoin cash, after a group of Chinese developers decided to split bitcoin’s original code in protest at what Reuters calls “improvements to the currency’s technology meant to increase its capacity to process transactions.”

2017 also saw the first major public efforts from financial institutions to get involved in cryptocurrencies, with two US exchanges, the CME and Cboe, creating platforms for customers to trade bitcoin futures. Numerous major banks also announced projects involving crypto, which helped fuel the rapidly expanding bubble in bitcoin’s price.

That bubble began to burst just before Christmas — only a couple of weeks after futures were launched — and by the end of January 2018, bitcoin had fallen from around $20,000 per coin to just $10,000.

The falls were driven in part by rising fears that regulators planned to crack down on the cryptocurrency, which had largely operated outside the auspices of normal regulators until that point.

Bitcoin continued to decline during early 2018, before eventually stabilizing at around $7,000 per coin. It has remained in the $6,000 to $7,000 range since June, and the volatility that characterised the market in 2017 and early 2018 has all but evaporated. On its 10-year anniversary, bitcoin is trading at $6,305 per coin.

While it has now well and truly entered the mainstream consciousness, there are still concerns that it has longevity, and could ultimately fail. Even Wences Casares, widely known as bitcoin’s “Patient Zero” for his role in spurring interest in crypto in Silicon Valley, expressed worries about its future.

“It may work, it might not work,” he told SAID on Monday. “We are in the equivalent of 1992 for the internet.”


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Author: Will Martin
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Cryptocurrency Bitcoin Marks 10 Years

October 31, 2008 marked the birth of bitcoin. Ten years on, the world’s first cryptocurrency is at the forefront of a complex financial system viewed warily by markets and investors.

From its first evocation amid a global financial crisis, in a white paper written by Satoshi Nakamoto, an unknown pseudonym, bitcoin conveyed a political vision.

The “abstract” set out in the paper for bitcoin, currently worth about $6,400 per unit from a starting point of virtually zero, was for “a purely peer-to-peer version of electronic cash (that) would allow online payments to be sent directly from one party to another without going through a financial institution.”

A decade on, this continues to be carried out via a decentralised registry system known as a blockchain.

Such ambition for a cryptocurrency was fuelled by the bankruptcy of US investment bank Lehman Brothers in September 2008, an event that discredited the traditional system of “a small elite of bankers… (that) establishes monetary rules imposed on everybody”, according to Pierre Noizat, founder of the first French bitcoin exchange in 2011.

Following its creation, bitcoin evolved for several years away from the public eye, grabbing the attention for the most part of geeks and criminals—the latter seeing it as a way to launder money.

After bitcoin surpassed $1,000 for the first time in 2013, it began to attract the attention of financial institutions.

The European Central Bank compared it to a Ponzi scheme, but Ben Bernanke, then head of the US Federal Reserve, hailed its potential.

A turbulent childhood

In early 2014, the cryptocurrency faced its biggest crisis to date, with the hacking of the Mt. Gox platform, where about 80 percent of all bitcoins were traded.

The result was a collapse in their value, leading to predictions of the virtual currency’s death.

It took until early 2017 for bitcoin’s price to fully recover.

That marked the start of a “turning point” according to Noizat, as the controversial cryptocurrency then rocketed to more than $19,500 by the end of the year according to Bloomberg data.

That meant bitcoin had a total capitalisation of more than $300 billion, according to the specialised website Coinmarketcap.

By January 2018 the value of all cryptocurrencies exceeded $800 billion, before the bubble burst.

The concept of a digital currency has progressed substantially thanks to bitcoin, cryptocurrency analyst Bob McDowall told AFP, pointing to the creation of 2,000 rivals.

“It becomes more than a technological, economic innovation. It almost becomes a religion for some people,” he noted.

According to Anthony Lesoismier, co-founder of investment fund Swissborg which offers portfolios based on blockchain, “the real revolution has been on a philosophical level”.

But for economist Nouriel Roubini, decentralisation in crypto is a myth.

“It is a system more centralised than North Korea. Miners are centralised, exchanges are centralised, developers are centralised dictators,” Roubini tweeted.

If the initial idea was for bitcoin to facilitate payments, a majority of observers recognise that it is used above all as a store of value or as a speculative instrument owing to volatility in its value.

“You need 20 years for this kind of… technology to take hold completely,” said Noizat, who is banking on faster transaction speeds for bitcoin.

As it stands, about five to ten bitcoin transactions can be processed per second compared with several thousand for Visa cards.

Looking ahead, US market regulators are considering applications for bitcoin-based exchange-traded funds, which if approved by the Securities and Exchange Commission would see the virtual currency become part of a financial system it set out to bypass.

“We must cross some bridges in the short term” to generate the general public’s interest and trust, said Lesoismier, who described himself as both an “idealist” and “realist”.


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Author: Kevin Trublet
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