Bitcoin’s Report Card and the Best and Worst of Crypto-Land for 2019
It was the best of times. It was the worst of times. It was a decade filled with successes, progress, and promise. It was a year of achievements and a few setbacks. It was the Crypto-verse, a revolution in the making that spread to every corner of the globe. As much as governments resisted its intentions, the more they became receptive once they were educated to the realities of blockchain technology and how the digital asset age might make everything a little bit better.
As we greet a new decade, it is appropriate to take a moment to appreciate how we got to this place, where there are nearly 5,000 cryptocurrencies with an overall market cap of nearly $200 billion. Bitcoin, the undisputed “King of Crypto-Land” commands a mighty market share of 68.3% and a market cap somewhere north of $130 billion. These figures have all been much higher, but the general feeling is that greater heights will be possible once the highly anticipated halving event takes place in May of 2020.
Although there were many great inroads constructed during 2019, which we will touch on later, there still remain three major challenges that will continue into 2020. First, is regulatory and governmental acceptance, such that the threat of an overall “crypto ban” is no longer hanging in the air like a dark cloud. Second, we have yet to see a “flagship” blockchain application that gains broad acceptance by the masses and the press. Yes, successes have come across the globe, but primarily in background infrastructure. Lastly, the lack of easy public access to Bitcoin via a BTC Exchange-traded Fund (EFT) remains a formidable hurdle. The SEC has denied all proposals, but Canada did not.
Crypto data forensic companies have been working with law enforcement officials and government authorities to dispel the myths about blockchain technology and to assist in the apprehension of criminals that mistakenly believe that their tracks have been hidden. Yes, there is more to be done to eliminate the allure of anonymity and gain further acceptance by the powers that be. The Financial Action Task Force (FATF) proposed guidelines for its country members to draft common standards and regulations for what is called the “Travel Rule”, which basically removes anonymity from the crypto equation. The first deadline is in July, but much more work needs to be done.
There is a larger problem brewing that, if not addressed quickly, could start a war with regulators. CypherTrace, one of the leading security firms in the industry, recently reported that: “Roughly 65% of the top 120 crypto exchanges lacked strong Know Your Customer policies. Moreover, compliance at 24% of the exchanges was “weak”.” PwC claims that: “A large AML or sanctions violation scandal today could erase years of hard work from the community which tried to show that crypto is much more than just the Silk Road or the dark web.” More material fraud and scandal will cause dire consequences.
There have been a plethora of articles about successful implementations of blockchain technology in the global corporate space. Forbes’ “Top 50” list delineated many of these programs, but the world is waiting for the big “mover and shaker” to appear. Here are two relevant comments about the need of a “flagship application”, as reported by Cointelegraph:
- Lanre Sarumi, CEO of crypto derivative exchange Level Trading Field: “The lack of a groundbreaking project that would have opened the eyes of skeptics is most disappointing. Libra came the closest with a lot of promise, but nothing else [in 2019] really popped.”
- Chris Hart of Civic Technologies: “People need a simple use case that makes the benefits of blockchain technology clear and straightforward, like email.”
Many Bitcoin advocates had hoped for a BTC ETF approval in 2019, but Jay Clayton, the chair of the SEC, and his staff went back and forth with Bitwise Asset Management and their more than worthy application, but it was not to be. Clayton has no confidence in the Bitcoin market and the ability of exchanges to prevent price manipulation. He has admitted that much progress had been made in other areas of concern, but he appears to be intransigent on this single point. In the meantime, Canadian authorities approved what amounts to a BTC ETF in Canada. Time will tell if there is a competitive impact.
As for major “inroads”, the thinking in 2018 was that the next year would be the year of institutional involvement in a big way. Fidelity Investments was paving the way with its digital asset subsidiary. TD Ameritrade and E*Trade were lining up, as well, but the highly anticipated “torrent” of new capital was nowhere to be seen. The three titans took their time with measured launches with institutional clients, but little if anything for the general public. Access to the CME was facilitated, but the Bakkt exchange was a disappointment in every respect. Big Players seemed content to buy into the Grayscale private fund products or use the internal OTC desks of their respective brokers. In any event, the crypto world is still waiting for an expanded level of participation.
In a way, there have also been major “inroads” into preventing breaches of major crypto exchanges. Chainalysis reported that the third quarter witnessed a decline in criminal activity, but that total losses through that period, $4.4 billion, far exceeded the $1.7 billion figure for all of 2018. Of this total figure, however, only $15.5 million relates to exchange compromises, a sign that beefed up security precautions are finally making headway. A full $4 billion of these losses quizzically pertained to three rather strange twists in the world of crypto fraud:
- QuadrigaCX ($192 million): Its Canadian CEO died under mysterious circumstances after allegedly absconding with the funds and passwords for the exchanges “cold” wallets;
- Bitfinex Scandal ($851 million): The exchange used a questionable third party in Central America whose funds were seized for suspicious money laundering activities, but the exchange tried to cover up the loss by moving Tether reserves to the exchanges bank accounts, claiming a loan had been made.
- PlusToken ($2.9 billion): This was the largest Ponzi scheme in Crypto-Land with little or no information about it. It focused primary on wealthy Chinese and Asian investors, before deploying the largest Exit Scam on record. The belief is that BTC and ETH prices have been depressed, as the crooks slowly liquidated their ill-gotten gains. Chainalysis states that: “We believe that the criminals behind the PlusToken Ponzi scheme could be driving down the price of Bitcoin when they liquidate their stolen funds via OTC brokers.”
Has 2019 been a lost year, so to speak? A few industry observers expected more from all participants, including token and application developers, institutional investment firms, and blockchain technology. The wait is becoming excruciatingly longer than expected. Per Vinny Lingham, co-founder and CEO of Civic Inc.: “When the crypto community looks back at 2019, it will be remembered as the lost year. This is not unexpected because 2017 was such a milestone year. I like to say that the bigger the party, the bigger the hangover. We’re still dealing with the hangover.”
But 2019 was also a year of “Winners” and “Losers”, for example:
- Bitcoin: How many other investments more than doubled in value during 2019? BTC began at $3,330 and ended the year at $7,166, a nice 115% return. Gold came in at 17% and the S&P 500 at 22% or so. Bitcoin was also named the best performing asset for the decade.
- Binance: The unequivocal leader in the global exchange arena, Binance has expanded its global footprint, moved its HQ to Malta, and continues to offer new products like leverage, options, and returns on account balances. It is no wonder the exchange is valued close to $8 billion.
- Coinbase: The undisputed exchange leader in the U.S. market has also expanded greatly, bypassing a few hiccups along the way, as well, in the acquisitions area. It, too, is valued at roughly $8 billion, a standard for all to emulate.
- Facebook and Libra: There was so much promise when a social media titan decided to launch a global project in the crypto space. The only problem was that lawmakers had already blasted Mark Zuckerberg for privacy transgressions and a number of other trust-related topics. It was just too easy for US and EU officials to attack the project without giving it the slightest of “sniff tests”. It remains to be seen if this project will ever get off the ground to contend with China and others.
- Bitwise Asset Management: They may have tried valiantly, but the failure to persuade the SEC to approve a BTC ETF was a disappointment for all in Crypto-Land, not that the odds favored its passage. The market hardly moved when the decision came down, a sign that investors were not counting on Clayton and his boys coming around.
- XRP Investors: Of the top ten cryptos, XRP was the worst performing of the lot, actually losing 46% year over year for its investors, while almost all other altcoins were positive. What is Brad Garlinghouse, Ripple’s CEO, doing? He and his management team have decided to sell treasury coinage stock when needed for operating and development expenses, much in the vein of a typical startup but anathema to all things crypto. Ripple needs to achieve its cross-border payment goals to get back on the right track. Garlinghouse has also been quoted as saying that 99% of all cryptos will go to zero because they are not focused on real problems, like he and his staff are.
2019 is now in the history books. Long live the efforts of 2020! As a summation, these concluding comments from the analysts at Cointelegraph seem apropos: “Overall, the crypto industry has shown some significant growth over the past year. Although volatile, Bitcoin is showing significant signs of growth. More institutional investors are looking into the industry to find more ways to invest as well. Even though there is a downtrend in market cap and trading volumes, prominent traders believe that a turn of fate might just be around the corner, especially for Bitcoin holders.”