2018 Bear Market: Top 5 Setbacks for Cryptocurrencies and Tokens in the Past Year

In 2018, the big promises of digital assets finally met with reality. In past years, a series of projects went through boom and bust cycles, but 2017 and 2018 saw a proliferation of tokens, and coins tried to claim a place in the mainstream financial sector. Here are the top headwinds that came along with the generally worsening trading sentiment, and the bear market:

ICO Freeze: The loss of enthusiasm for token sales was exacerbated by the bear market, as buyers could no longer expect to make quick gains. Additionally, projects started indicating that their promised products were nowhere near completion. Tokens also proved to be problematic in themselves - while the main pitch of digital assets was immutability, tokens and smart contracts had room for error, or outright tampering. Frozen tokens in the Parity wallet and smart contract exploits affected several projects, which undermined trust in this type of digital asset.

But tokens also saw regulatory risks, as projects came under investigation for selling unregistered securities. This brought many projects to a standstill, as they started exploring ways to offer security tokens that came to be seen as the future of tokenization.

Bitmain’s Troubles: Bitmain started the year with great success. But the second quarter showed much slower results, and the third quarter results are expected to be even more dismal. Mining and investing in expensive equipment, started to lose momentum as Bitcoin market prices showed no signs of recovery. Bitcoin’s mining peaked in early November, and declined to much lower levels. Now, Bitmain may have trouble selling its shares in an IPO in early 2019. The news is yet another hit on the stability and credibility of the sector, especially on the expectations of additional investments into the sector.

De-anonymization: In the past, the possibility for fully anonymous transactions was seen as revolutionary. But digital coins had to make a tradeoff: in order to participate in the legacy financial system, anonymity had to go out the door. In the meantime, know-your-customer (KYC) and anti-terrorism financing screenings became the norm. The crypto markets were no longer borderless, especially for participating in exchanges, and a list of countries was excluded from trading.

Tether Troubles: Beginning at the end of October, the long-criticized but influential stablecoin saw a series of breakdowns, ending up with price instability and a crash to $0.85. At that time, both the Tether project and the Bitfinex exchange also saw trouble finding a bank willing to support a Bitcoin-related project. The crash in USDT caused price instability for Bitcoin, further undermining trust in the markets. At that point, Tether retired 1.3 billion coins, and became very cautious about injecting new liquidity. Without the injections of USDT, Bitcoin market prices continued to slide.

The Stock Market Downturn: After a decade of quantitative easing and record stock valuations, the markets started to change direction in the last quarter of 2018. So far, Bitcoin and digital assets have existed in a world flush with liquidity, where hot money sought any type of return. The digital coin market will now have to survive a tidal shift in investment, as liquidity may dry up. This in itself could be the most significant hurdle for crypto markets, where the following months would show the full effect of a stock market downturn on the prices of digital assets.

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by Christine Masters, 24 December 2018

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