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Blockchain

2018 in review: A year of regulatory shake-ups, investor wake-ups, and stablecoin take-ups

Quick Take

  • An overview of the past twelve months in crpyto: a catalyst for blockchain building and a springboard for wider adoption.
  • Why the year has been a necessary wake-up call and given even serial-skeptics faith
  • A look at the biggest troublemakers and takers 
  • For major events, check out The Block‘s full timeline.

Let’s admit it – crypto 2018 has been nothing short of a Hollywood drama. It had it all – the rising stars from humble roots (Possibly the entire crypto lawyer community), the antiheroes getting unmasked (Did someone say Bitconnect?), and of course, the budget to match (Note the $1bn crypto hedge funds). It even had its own version of a blockbuster flop, with a $706 billion downturn.

Admittedly, Hollywood tends to provide more climactic finishes, but this isn’t the end for crypto; quite the contrary. So what do this year’s nerve-jolting prices, scam-coverage, and twitter rants boil down to?

First, the regulators caught up.

Over the last five years, with the exception of China, the world watched in mixed merriment and astonishment as crypto fanatics traded their unusually volatile digital assets. After all, what was the use of serious guidelines in a short-lived micro-sphere where self-governance was the name of the game? 

But in 2018, the likes of the US Securities and Exchange Commission (SEC) got serious, perhaps deciding that crypto was not a quirk but a fundamentally new way of playing that even major institutions were considering. SEC Chairman Jay Clayton’s comments in February signaled the end of the governments’ deliberation period around token sales, telling a Senate hearing, “I believe every ICO I’ve seen is a security.”

It should have come as little surprise then that blockchain startups that had conducted ICOs were their biggest target. The SEC launched hundreds of actions against those who had allegedly offered defacto securities to unaccredited investors, including Airfox and Centra. The most notable exception was Ethereum, which narrowly escaped the SEC noose after it eventually concluded it was not a security. According to a Decrypt investigation in October, many others settled the subpoenas by paying investors back their money, hitting the industry hard. So hard, that the days of raising tens of millions with a loosely-planned vision and a plagiarised white paper may be gone – or so the SEC hopes. 

Next, regulators caught up with the much-hyped vision of crypto exchange-traded funds (ETFs). The SEC rejected nine applications, including the Winklevoss twins’. However, with the latter, the SEC showed they were a normal, healthy body prone to disagreement, with Commissioner Hester Peirce (aka. Crypto mom) critiquing the decision. Little traction there, but certainly a precedent for discussion was set.

South Korea got tougher too, with authorities raiding six exchanges for various breaches over the year. Indeed, we witnessed several crypto-related criminal investigations – already resulting in more incarcerations than were brought for the 2008 crash. 

Theoretically then, we enter 2019 clearer on the US law and boundaries around tokens, buoyed by a wave of pro-regulation backers; from Bill Clinton to Ohio’s tax department.  

Second, investors realized that crypto is not a pain-free thrill ride. And that revolutionizing age-old investment models would be harder than expected – especially when you’re the one picking up the bill.  

The price plunge may end (eventually), but the market will be irreversibly wiser for it, with investors and traders (hopefully) more skeptical of ‘decentralization’ pledges and more attuned to the red flags.  

“It was a necessary wake up call,” The Block’s Head analyst and notorious no-coiner Larry Cermak said. “We saw that it was like any other asset and built on speculative mania, hyped by irresponsible ICO advisorsCrypto was one of the biggest bubbles we’ve seen in the last 100 years. But the market was not as irrational as people thought. That and the fact people are building out the infrastructure, as a result, are the reasons I’m still in this space.” 

Educational initiatives like the SEC’s fake token offering are also helping investors navigate these unchartered waters. 

“2018 marked the end of free money,” said Robert Leshner, the founder of Compound Finance. “People were trading assets out of thin air. 2018 was the end of that. It was the perfect transition year. It was ‘an evil serving the greater good’ and I think it will be extremely positive for smart contract platforms, including Ethereum, Tezos, DFINITY, etc., in the long-term.” 

It may be idealistic to believe the opportunists have disappeared. But what’s clear is that the mob has retreated, more reasonable expectations are being set, and price-obsession is being pushed to the fray by a respected community of tech builders.

As crypto user adoption doubled this year, crypto custodian solutions emerged, and new protocols like Polkadot closer to execution, confidence is quietly booming; regardless of price.

And finally, there was the rise of the institutionally-backed stablecoin.

The launch of $USDC by Goldman-funded Circle as well as the Winklevoss twins’ Gemini Dollar saw a lofty commitment to making crypto a widely-usable trading tool. One that allegedly wouldn’t drop 50% in a week and wasn’t prone to a dramatic hard fork as Bitcoin Cash experienced in November. And with Facebook’s December confirmation that it was launching a new stablecoin, it looks like the big players are betting on this new version of crypto defining the future.

Together, this also signals traditional institutions’ most significant commitment to crypto yet, along with the planned launch of Bakkt. The stablecoin phenomenon means they now have ‘skin (and billions of dollars) in the game,’ even if they remain wary. It may now have been the year of institutional take off – not even close – but it was unarguably a year of institutional activity and symbolic acts of faith. Even Google lifted its ban on crypto ads, perhaps trusting that the space is cleaning up its act.

“We’re beginning to tokenize existing assets,” said Robert Leshner, who also remarked on the impressive level of “ top talent joining the crypto world” this year by extension.

Meanwhile, Venezuela also welcomed the first government-backed stablecoin, the Petro, pegged to the national peso. With bated breath (and a justifiably high degree of cynicism), we saw evidence that crypto could be used in countries with high inflation and devaluing currencies. 

Still, Tether’s $USDT downwards spiral in October demonstrated that stablecoins are not a crypto quick-fix, with solvency and transparency around the accounts the clear distinguisher for the months and years ahead. Meanwhile, Larry Cermak asks, is there space for all of them and how will the natural forces of competition play out?

So, after its divisive performance, crypto ends the year with a cleaner, more committed support-base, and a firmer technological launchpad. Regardless, crypto has our attention and we, the willing and captivated audience, are ready for the sequel. 

Happy 2019!

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Photo by NordWood Themes on Unsplash