2018 had been catastrophic to most of the crypto verse because of continually dropping prices. That will put many blockchain projects between a rock and a hard place because they will lack the resources to fund their businesses. Some are already laying off a lot of people, shutting down projects, and scaling back so they can deal with the current hostile environment.
Anthony Maguire, who previously worked for Facebook and now runs a blockchain advisory and education business for emerging markets had this to say about the elephant in the room:
“I think you definitely will see companies go bust. Tech startups go bust all the time. Sometimes they get swept under the rug in the sense that people just forget about them.”
A tale of ups and downs
2017 was an amazing year for the cryptosphere. Its popularity exploded because of Bitcoin’s rising price and the insane amount of initial coin offerings (ICOs) that happened during the year.
The Bitcoin-USD trading pair kept going up almost all year, and that brought to the market lots of new investors that were not interested otherwise. Most of the newcomers were hoping to make authentic fortunes as BTC kept increasing in price. By December, the price was dancing around the $20,000 level.
Then there were the ICOs. They just went crazy. It happened because startups found ways to issue their own native tokens, modeled on Bitcoin up to a point so that they could fund their projects.
Ethereum was the most popular platform for that, which means that most new projects were selling their assets in an ETH trading pair and that drove demand for Ethereum high and turned it into the world’s second-biggest currency by market capitalization.
But it couldn’t stand its ground against Ripple’s XRP which now holds that second spot. By year’s end, there were more than a thousand new digital assets in the market.
And then, 2018 came along. The thing (you know what thing) hit the fan, and it got splattered all over the place.
Bitcoin was at $17,000 on December 17th, 2017, and it’s trading around $3,800 as we write this. When the price was at its peak, no new investors came into the market hoping to get rich, so the market collapsed. Many Bitcoin holders found out that they had an asset in their hands for which there was very little demand or usefulness aside from speculation.
Not only Bitcoin has gone down, but most of those ICO tokens have also had a catastrophic year because most of their parent projects have failed to deliver their very ambitious promises.
“We’ve got a 90% s***coin marketplace, where people have then lost money because the realization has been there is no utility,” Edd Carlton, the head of OTC trading at BlockEx, told Yahoo Finance UK.
It matters when you have a history
Almost as important as Bitcoin is Ethereum and it’s also been going down all year. From $1,000 to around $130 currently. ETH has also brought down the prices for all the other ETH-20 tokens that saw their coins lose value and their cash piles shrink, whatever care they could have taken to prevent that.
“There’s less propping up poorly managed companies now than there was in January,” Maguire told Yahoo Finance UK. “It’s easier when you have years and years of the runway and huge valuations.”
The market’s failure already has consequences. Steemit, the blockchain-based blogging site, got rid of 70% of its staff after its coin collapsed. SpanChain, an adult entertainment project also based in crypto is losing 60% of its people for the very same reasons.
ConsenSys, which enjoys a rather high profile in the cryptoverse, is going to do away with 13% staff for now, but it could go as high as 60% in the near future.
Crypto miners, which are the companies, or private individuals that give life to networks such as Ethereum and Bitcoin (and yet, not all tokens are minable, like Tron or XRP) are also having a hard time because mining is becoming more expensive as the coin’s value is going down.
So it’s stopped making economic sense for many of them to be involved in the mining process. Gigawatt, a Bitcoin miner, based on the US filed for bankruptcy in November. Bitmain, a company that manufactures Bitcoin mining equipment is already laying people off
“We look at this correction as fairly healthy for the market,” Lucas Friss, head of business development at Cumberland Mining, told Yahoo Finance UK. Cumberland Mining is an over-the-counter cryptocurrency trading businesses owned by Chicago prop trading company DRW.
Friss said,
“There’s a lot of questionable projects and things out there that need to wash out of the system for the intelligent and the strong projects to come out the other side”
He didn’t “attack” any particular project, but spoke about the market as a whole. He also predicted that many investment funds based on crypto would shut down next year (this year, 2019).
“You have a lot of funds that were started that aren’t going to survive,” he told Yahoo Finance UK. “Part of that is confirmation bias. If you bought bitcoin in January 2017, you probably think you’re an investment genius.”
But both Mr. Friss and Mr. Maguire agreed in that this current hostile market situation will ultimately benefit the cryptosphere.
“People who are still going to [crypto] meet-ups right now are people who really care and people who are in it to really solve hard problems,” Maguire said. “I think what we’re going to have in 2019 is less hype, more hard work, and more deliverables.”
As long as the bears run the market, things are going to look fishy. But who really knows? 2019 could also be the year in which the bulls take over the market again, as they did in 2017, and create such a spike that even doubtful blockchain projects could be rescued.
The crypto market has been down many times already. Each time it’s recovered and reached new unsuspected heights, so there’s no reason to believe that this is the end seriously. At least not for every single cryptocurrency especially Tron (TRX) and few others with real vision and potential but, yes, maybe a few are taking their last steps. Only time will tell.
Image courtesy of PixaBay.