2017 was a hot one for cryptocurrency investors. Can 2018 top 2017’s 3,300% increase in market cap? Will cryptocurrency keep outpacing stocks (with an average 7% increase, inclusive of dividend reinvestment and when adjusted for inflation)? What’s next?
There are no guarantees in the cryptocurrency world, but here is what experts are predicting for the remainder of 2018:
1. The value of Bitcoin will be slashed in half
Since February, Bitcoin has dropped to around $6,000 per coin, which is less than half of where it started out the year (at $14,156 per coin). Experts believe Bitcoin values will halve once again in 2018 for a few possible reasons:
- Bitcoin’s slow transaction-processing
- Investors are cautious, because of increased regulation in the US and South Korea
- Institutional investors with deep pockets increase skepticism around cryptocurrency investing
2. Lower aggregate crypto market cap
Institutional investor trading didn’t hit the digital currency market hard until the end of last year because they didn’t want anything to do with a decentralized market. That meant retail investors were the biggest consumers, but lacked the means to bet against digital currencies (short selling). However, by mid-December 2017, and continuing through the spring of 2018, access to institutional investors has increased. Now, Wall Street investors can place upside and downside bets on cryptocurrency. This creates a fairer market (where institutional investors can make money to the downside, just as retail investors pushed virtual currencies to the upside) and as a result, the crypto market cap is expected to decline.
3. Stricter regulations
The Securities and Exchange Commission (SEC) issued a statement in December 2017 stating that cryptocurrency investors should be wary, due to the unregulated nature of cryptocurrency trading, as well as the fact that significant trading occurs outside US borders. This makes it virtually impossible for the SEC to intervene on behalf of investors in case of fraud.
The IRS has begun going after cryptocurrency tax evaders. The passing of the Tax Cuts and Jobs Act in December eliminated a lucrative loophole of “like-kind exchanges,” meaning that all
virtual currency capital gains and losses must be reported on federal income-tax returns.
Government officials are not in favor of the anonymity associated with digital currency trading, or its unregulated and decentralized status. The US may follow South Korea’s lead in requiring all banks to verify individuals’ identities before allowing their bank accounts to be linked to any cryptocurrency exchanges, and prevent any additional capital from being added to a decentralized crypto wallet.
4. Bitcoin will be surpassed in market cap
Bitcoin is the largest digital currency, but emotional trading, wild fluctuations in value, and other influences open the doors for another virtual token to surpass bitcoin in market cap, at least briefly.
The likeliest candidate is Ethereum, which has held to a comfortable #2 place behind bitcoin for nearly a year. The Enterprise Ethereum Alliance, the largest open-source blockchain initiative in the world, is growing – currently over 500 organizations who have adopted its customizable smart contracts technology. Since Ethereum’s blockchain technology is applicable in various currency and non-currency situations (as opposed to bitcoin, which is currency only), Ethereum may be in the position to surpass bitcoin, eliminating the $70 billion in market cap it currently trails bitcoin.
5. A crypto-merger
Currently, there are around 1,600 investable cryptocurrencies; of these, only around 500 have a market cap greater than $10 million, and only 91 tallied trading volume over $10 million within a 24-hour period.
This means that the investable cryptocurrency space is crowded, and not all of these currencies are very liquid. There are only two ways to fix the clog: remove certain digital currencies from exchanges, or create cryptocurrency mergers.
And that’s a whole new can of worms. Even though it *should* be as easy as making computer codes compatible between two blockchains and their virtual tokens, crypto developers are prone to adding proprietary tweaks that can be incompatible with other networks and/or tokens.
If smaller cryptocurrencies want to play with the big dogs, or if up-and-comers want to surpass bitcoin and Ethereum, the only likely way is through mergers.
In January 2018, rumors began circulating about a potential merger between bitcoin rival Litecoin and privacy coin Monero. This merger didn’t happen, but it is a sign that mergers are needed, and will be happening, the crypto space. Most likely, the first notable merger will occur by the end of 2018.
6. Introduction of a bitcoin ETF
The NYSE and CBOE are eager to bring a bitcoin exchange-traded fund (ETF) to market; however, Dalia Blass, the SEC’s director of the division of investment management, is requiring fund managers to answer 31 questions pertaining to the specifics of how ETFs will store and safeguard cryptocurrencies and protect investors’ interests.
If government regulations come into play, the SEC will likely allow a bitcoin ETF to hit the market later in 2018. It’s important to note that a bitcoin ETF wouldn’t track bitcoin prices; instead, it would be based on bitcoin futures, which are currently trading on the CBOE and CME platforms. It also remains to be seen whether a bitcoin ETF would follow the CBOE or CME.
7. Cryptocurrency bans in major countries
A few smaller countries have already banned cryptocurrencies: Bangladesh, Bolivia, Ecuador, Kyrgyzstan, Morocco, and Nepal. Cryptocurrencies are still legal but frowned upon in China and Venezuela.
Britain appears to be next in line to impose severe restrictions or outright bans on cryptocurrency, due to the digital currency market’s hype and volatility. British banks have banned the use of credit cards for bitcoin purchases the Treasury Committee of the UK Parliament has begun investigating how cryptocurrencies affecting UK consumers, investors, and businesses. Emotional retail investors would experience a significant hit to their confidence if a major market like Britain should place a ban on cryptocurrencies.
With that said…
Predictions are just that. Predictions. They are not guarantees. There are most definitely some risks involved with cryptocurrency investing, including the fundamental metrics that determine an asset’s valuation. There is virtually nothing that accurately predicts the long-term value of any digital currencies.
Another big issue is blockchain technology itself. A cryptocurrency’s ledger – a digital, distributed, and decentralized technology – works well within the confines of small-scale projects. However, since blockchain is largely untested in real-world applications and until it becomes viable in big-business applications, no businesses will be willing to dive in headfirst.
As more regulations and real-world applications make blockchain technology more appealing to other industries, things may shift; but at this stage, cryptocurrency investing is still best suited for the thrill-seekers who are willing to risk it all.