Wednesday, February 14,
2018 11.03AM / Coindesk / Nolan
Bauerle and Peter Ryan
If bitcoin is in a bubble, it is one
of the few in the history of finance – if not the first – that expanded with
negligible use of credit.
That's just one of the unique
takeaways from CoinDesk's State of Blockchain 2018 report, the latest in the
quarterly series setting out our in-depth research on the rapidly evolving
world of cryptocurrencies and the technologies they've inspired.
Released Wednesday, the report
provides a 160-plus slide analysis of some of the data points propelling this
story forward.
The report covers public blockchains,
DLT, consortium chains, initial coin offerings (ICOs), trading and investments,
and regulation, and also features the results of our 70-plus question sentiment
survey, which provides insight from over 3,000 CoinDesk readers.
Here are five of the most significant
trends that defined both Q4 and 2017:
1. This is not your father's investment
bubble
Bitcoin went on a super run in 2017
with returns for the year at 1,278 percent. Along with all the mainstream
attention came discussion of whether the original and still largest
cryptocurrency was
in a bubble.
Our own readers were split on this,
with about 49 percent answering "yes," 39 percent saying
"no" and 11 percent who were neutral. Deeper than this split of
opinion, our survey provided a much needed data point around the whole
speculative bubble conversation.
Only 19 percent of our respondents
went into debt to buy crypto, and of those who did, over half paid back their
loans. The important and historic takeaway is that if bitcoin is indeed a
bubble, it is the rare kind that has inflated with little leverage or borrowed
money. (Margin trading on the exchanges was recently introduced, but it is
limited and typically offered on a peer-to-peer basis.)
In short, bitcoin has made it this far
without help from Wall Street or banks (unless you count the wholesale closing of accounts to certain industries and
geographies by risk-averse financial institutions, which may inadvertently
drive those de-banked users to use a permissionless system).
This marks the first time in recent
memory average people have been ahead of the so-called "smart money"
– another chapter in the ongoing narrative that bitcoin and cryptocurrencies
are the most interesting story worldwide in finance and economics.
2. The market has significantly
diversified
In January 2017, bitcoin’s value
represented over 90 percent of the cryptocurrency market. Ethereum had a huge
developer following, but its trade volumes were still quite small. But when its
first "killer app," the ERC-20
smart contract to generate tokens and ICOs, began to gain traction in Q2 2017,
the whole story changed.
Demand for ether (generally needed to
participate in many ICOs) grew, and so did the ability to finance and create
new blockchains. This chipped away at bitcoin's dominance in the market until
Q3, when bitcoin reversed the downtrend.
The timing of that shift appears to
line up with bitcoin's adoption of Segregated Witness and the end of confusion
around the bitcoin
cash fork. While bitcoin steadily won back its dominance score, it waned
again in December as ethereum had its best month of the year, driven by the ICO
boom.
The market also diversified with the
rise of an institutional crypto buy side, as hundreds of new
funds formed to get exposure to this new asset class.
3. Ethereum continues to set all-time
transaction records
ICOs helped push demand for ethereum
in 2017, but they weren’t the only app that made news.
CryptoKitties
took the world by storm in December, adding another interesting wrinkle to
ethereum's magic year. While many criticized the silliness
of the Kitties, the novel blockchain use case nevertheless made its mark.
While ethereum had already broken its
transaction records in the third quarter, the digital collectibles app, along
with the upgrades from the Byzantium
hard fork, helped ethereum nearly double the volumes achieved just a few
months earlier.
Whimsical though it may be,
CryptoKitties helped paint a full picture of ethereum's current capabilities.
4. Korea fills the void left by China
From the outset of 2017, China
signaled the year was going to be different than in the past.
Any look at trade volumes and markets
pre-2017 would have led the reader to believe that bitcoin and cryptocurrencies
would suffer from this loss. But even with all Chinese exchanges closing on the
final day of Q3, bitcoin promptly went on its greatest bull run ever.
In short, it seemed no one cared that
China was out. Rather, it was an opportunity for new players.
South Korea, for one, became an
important cryptocurrency trading hub in Q3 and Q4 – taking up much of the void
left by China. The Korean won became one of the highest-volume paired
currencies in the industry, with particularly high XRP and ETH volumes.
5. ICOs were big, but forks and airdrops
were much bigger
While the entire early-stage financing
industry heard the call of ICOs
in 2017, they were a blip when compared to other token-generating events.
Forks and airdrops come with a
built-in user base (generally bitcoin HODLers) and were much more significant
to the overall market cap in cryptocurrencies.
The bitcoin cash fork was the first to
surprise the industry with the interest it generated, catching
several exchanges flat-footed when users demanded their inherited property.
Stellar
too offered airdrops of its native currency, lumens, to bitcoin holders,
leading some to believe this will be a more widely used strategy going forward.
Related Links
1. Bull
Run or Just Bull? Take CoinDesk's State of Blockchain Sentiment Survey
- Jan 18, 2018 | Nolan Bauerle
2. Blockchain and
the Rise of Transaction Technology - Jan 14, 2018 | Magda Borowik
3. Korea's
Central Bank Forms Task Force to Study Cryptocurrency Impact - Jan 11,
2018 | Sujha Sundararajan
4. Trump Signs
Defense Bill Authorizing Blockchain Study - Dec 12, 2017 | Stan Higgins
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