What’s happened to cryptocurrencies?

Over the past ~1.5 years I’ve been blogging on and off about cryptocurrencies, blockchains and other related topics. The most popular pieces of content on my blog have been my entire series about How to Build Dapps on Ethereum series and a post about fungibility, dating back to the spring of 2017. A lot has happened since then in the Wild West of crypto. So here’s a brief run-down.

Negative public sentiment

Throughout 2017 the public sentiment was sky-rocketing along with the price. Everyone claimed they were excited about the technology which, in reality, most people didn’t yet understand but were happy to throw their money at.

Since the prices of Bitcoin and Ether have reached their all-time-highs in December 2017 there’s been a decline of roughly 70%. Those who did not hedge their holdings have lost a lot of money, or lost unrealised capital gains.

The trading volumes have also seen sharp declines which would indicate that the public has (at least temporarily) lost interest and is walking away. Google search trends for the term “bitcoin” would indicate the same.

Positive developer sentiment

As strange as it sounds, the negative public sentiment has removed (for developers) the unpleasant surrounding of people wanting to only make money without real interest in the technology. In a sense, during times like these it’s mostly people who have a real interest in the technology that stick around, which developers seem to prefer.

I can anecdotally prove this by having seen multiple tweets like this in the past month:

Positive network health

At the end of the 2017 summer the future of Bitcoin looked very fragile and was portrayed as “dying” when it forked into Bitcoin and Bitcoin Cash due to technical debates. The Bitcoin network is now operating better, faster, cheaper and more secure than ever, as stated at length in Josh Olszewich’s excellent analysis.

Ethereum also faced some major challenges last year. The network was grinding to a halt during several occasions such as popular ICOs and when Crypto Kitties launched.
Since then however, the positive developer sentiment has produced some large improvements to the Ethereum network, such as big usability and performance enhancements to software like MyCrypto.com and Geth.

Positive business developments

In terms of making the technology more accessible to both regular users as well as institutional investors lots has happened. Projects which already provide value have continued to build and delivery even more.

At the end of 2017 CBOE (Chicago Board Options Exchange) launched financial derivative products for Bitcoin. That a major actor like CBOE was willing to put their reputation at stake and get involved with Bitcoin brought lots of legitimacy to the space.
And with the addition of products such as Coinbase Custody the environment for businesses and institutions is looking brighter than ever.

Positive regulatory environment

At the end of the 2017 summer China banning all cryptocurrency trading and everyone thought that was the end of cryptocurrencies. But since the honey badger doesn’t care, Bitcoin and other currencies continued to flourish throughout the year.

While the regulatory situation remains largely muddled, some clarity is starting to arrive. Officials of the U.S. Securities and Exchange Commission recently stated that Ether is not to be classified as a security (as in financial instrument).

This should further open the door for businesses and retail to build and use crypto products in more creative ways, without getting stuck in a regulatory nightmare.

While the question around financal securities isn’t the only hurdle to get by, it’s a pretty significant one and bodes well for the future.

Summary

In terms of price action and public sentiment, I still expect it to get worse before it gets better. Prices will likely continue to decline for another few months. Cryptocurrencies are hard to price and the market clearly hasn’t done enough price discovery since the last buying frenzy in 2017.

But despite negative sentiment with the general public, the environment for cryptocurrencies is looking brighter than ever. It’s the right time to get involved with and learning the technology to understand what impact it can have to normal life and society at large.

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