1. China Shifts Focus to Blockchain Technology

The Chinese government pushes bitcoin higher (and lower).

Xi Jinping announced that the world’s most populous country and second largest economy would focus its efforts on blockchain technology in late October. As the statement hit the media, it sparked the biggest move in the price of bitcoin in 2019. The move was also the largest intraday gain since May 10, 2011.

The Chinese President’s statement was the biggest event of 2019 in terms of the short-term impact on the price of bitcoin. China’s blockchain shift occurred against the backdrop of the ongoing protests against the Fugitive Offenders amendment bill in Hong Kong and one of the biggest use cases for Bitcoin became clear — as censorship resistant money.

BTC-USD jumped from $7,500 to above $10,000 to gain almost 40 percent in a single day on Xi Jinping’s remarks. State-owned news organisation Xinhua reported Bitcoin as the first successful application of blockchain technology.

The positive momentum didn’t last long though, and BTC-USD gradually returned to its pre-pump level of around $7,500 by late November. A clamp down on speculation in China followed a few weeks later.

2. Facebook Enters the Cryptocurrency Game with Libra

Facebook’s entry into the cryptocurrency scene with Libra swiftly beaten down by US regulators.

One of the main catalysts for bitcoin’s push above $10,000 to highs near $14,000 in the summer was Facebook’s Libra announcement. Facebook’s plans were seen as positive for bitcoin as it re-ignited interest in cryptocurrency among a wider audience and also showed why bitcoin was designed to be a decentralised system.

Shortly after the Libra announcement, Mark Zuckerberg faced intense questioning in US Congress. Besides Zuckerberg getting a grilling, the event also made it clear that Bitcoin has won over a few political friends because of its decentralised features — while others (like Brad Sherman) remained strongly opposed to cryptocurrency.

Zuckerberg faces questioning over Facebook’s proposed currency, Libra.

With Facebook’s move into issuing its own private money, it is not surprising that we heard a lot more about CBDCs (central bank digital currencies). The top-level design and testing of China’s Digital Currency Electronic Payment (DCEP) is reportedly complete. The ECB also expressed an interest in introducing a digital euro.

3. SEC: Telegram’s GRAM Offering Illegal

One of the largest ICOs to date halted, but Telegram fights back.

The Securities and Exchange Commission (SEC) secured an emergency restraining order against Telegram’s TON subsidiary on October 11 and deemed its GRAM initial coin offering illegal. The Telegram Open Network’s original launch date of October 31 was delayed due to the SEC’s actions.

Telegram raised $1.7 billion in the First Quarter of 2018 and its Telegram Open Network took a different approach to Facebook’s Libra with more emphasis on decentralisation. Claims to GRAM tokens were sold to private investors (rather than the public as with most initial coin offerings). The token traded on secondary markets before the network had even launched, with investors buying IOUs.

The Telegram news stood in stark contrast to EOS, another project charged by the SEC for an unregistered securities sale but paid a mere $24 million fine. EOS also raised a much larger sum ($4.1 billion) over a 12-month period starting June 2017.

Like Telegram, the company behind EOS (Block.One) did not build the blockchain network first. However, EOS received a fine that amounted to just 0.58 percent of the total raised in their token sale. Telegram hit back at US regulators, saying that the SEC’s actions were unfair and unjustified given their close cooperation with them in the past.

A court hearing will take place in February 2020.

4. President Trump’s Twitter Rant Against Bitcoin

Trump launched a trademark Twitter rant against bitcoin in July after the Libra hype.

Trump’s comments led to fears that the US president could introduce an Executive Order to ban bitcoin.

Fundstrat’s Thomas Lee used the vaping ban in the US to show how politics might affect cryptocurrency markets. Lee later backtracked once the ban was reversed. Others saw Trump’s comments as positive, as it demonstrated that Bitcoin has entered mainstream culture (and is therefore here to stay).

The chair of the Federal Reserve — Jerome Powell — also addressed bitcoin by calling it a ‘speculative store of value’. Following the boost Libra gave to bitcoin’s rally in the first half of the year, Powell jawboned the cryptocurrency lower and warned that Libra “could not go forward” until “serious concerns” were addressed.

With the year of the block reward halving for Bitcoin coinciding once again with the American presidential election, you’ll probably hear more about cryptocurrency from Trump and the Fed again in 2020.

5. PlusToken Scam Bursts Bitcoin’s Bubble

Ponzi scheme stole over 200,000 BTC, blamed for bitcoin’s downturn.

If you’ve been in the cryptocurrency scene for quite a while, you might remember the BearWhale in 2014. The BearWhale, an unknown entity, forced the price of bitcoin lower by selling a large number of coins on the market. Bitcoin bulls eventually got the victory. All the coins dumped on the market were bought until the BearWhale was defeated and their selling pressure had subsided.

Another BearWhale emerged in 2019 and has been connected to the PlusToken scam in China and Korea, which promised high returns in exchange for BTC/ETH (and other cryptocurrencies).

On June 27, several individuals behind the PlusToken Ponzi scheme were arrested in Vanuatu, which closely aligned with the 2019 high for BTC-USD. Using multi-signature addresses, the scammers who evaded capture were still able to access and move their ill-gotten bitcoins. The concerns are that the remaining PlusToken holdings could be sold in large batches and put downward pressure on BTC or ETH.

ErgoBitcoin analysed PlusToken’s activity and published their findings in ‘Tracking the PlusToken Whale: Attempted Bitcoin Mixing and its Effect on Wasabi Wallet’ in October. PlusToken is suspected to be behind a poor attempt at mixing at least 35,000 bitcoins to obfuscate their trail. They sent most of these bitcoins to Huobi, a popular Asian exchange.

A report released by Chainalysis in December showed that the PlusToken scam amassed over 180,000 BTC and 6.4 million ETH (along with 111,000 USDT), bringing the total haul to approximately $2 billion. The graphic below illustrates that there is some correlation between the PlusToken cash outs and the price drops. Their analysis goes on to show that there is a significant relationship between bitcoin’s price volatility and the PlusToken cash outs between September 23rd-28th.

The blockchain analytics company estimated in mid-December that the scammers still control around 20,000 BTC and 790,000 ETH, which means we could see more volatility and more sudden price drops in the near future.

6. Privacy for Bitcoin on the Horizon?

Two BIPs set the stage for privacy improvements in 2020/2021.

In May, two Bitcoin Improvement Protocols (BIPs) were put forward to address what is perhaps Bitcoin’s biggest area for improvement, privacy.

Written by Bitcoin Core developer Pieter Wuille, the two-part proposal is entitled Taproot/Tapscript and complements Wiulle’s July 2018 proposal for Schnorr signatures. With Schnorr signature aggregation, multi-signature transactions look like payments signed with a single key, saving space and improving fungibility.

Taproot, together with Schnorr, is likely to be implemented into Bitcoin in 2020/2021 as a soft fork upgrade, with an aim to achieve improved scalability and fungibility.

Taproot’s main benefit is the expansion of the smart contract capabilities of Bitcoin. For instance, Taproot will also move the Lightning Network away from Hash Time Lock Contracts (HTLCs) to Payment Points, which improves privacy since opening or closing a Lightning channel will look exactly like a payment to single pubkeys.

The resolution of the block size debate and failure of SegWit2x in late 2017 paved the way for a massive rally in Bitcoin. The privacy (and scalability) upgrades in the form of Schnorr/Taproot are not as controversial as Segregated Witness but once implemented, these improvements could help to spark a new phase of bullish momentum for BTC.

To get a more in-depth overview of Bitcoin’s technical progress over 2019, check out Bitcoin Optech’s Year-In-Review Special.

7. Explosive Growth in Decentralised Finance (DeFi)

At the start of 2019, if you’d have said DeFi, it would have been synonymous with MakerDAO. However, things are changing.

DeFi, which allows anyone to create and access financial services in a permissionless way across borders, is another major growth story of 2019. The dominance of MakerDAO in the DeFi space has fallen from around 90 percent at the start of the year to approximately 50 percent at present (in terms of ETH locked), illustrating how DeFi is growing and becoming more diverse.

Lending markets drove the growth in DeFi with more than half a billion in loans with projects like Compound and InstaDapp showing growing and becoming more important. The total amount of ether (ETH) locked in DeFi applications continues to reach record highs, as shown below, touching almost 3 million ETH.

In terms of trading, Synthetix and Uniswap are doing exciting and experimental things. Synthetix allows the creation of synthetic assets using Ethereum. Uniswap has humble beginnings and is perhaps the only successful DEX this year. The project was conceived as a hackathon project and quickly out-competed more established players in the DEX scene.

8. Exchange Hacks and Exit Scams Exceed $480 Million

Although down from an estimated $865 million in 2018, 2019’s losses brings the total amount stolen from cryptocurrency exchanges to $1.44 billion.

At least $481.50 million was stolen or lost from cryptocurrency exchanges in 2019. The table below details each exploit and is collated from various sources.

IDAX’s CEO disappeared in early December, and the exchange suspended all withdrawals since the CEO had sole access to the crypto-assets in cold storage (IDAX not included in table). It’s unclear how much has been frozen and whether it is an attempted inside job or not.

It was a similar story with QuadrigaCX. Apparently, the CEO died in late 2018 and no one was able to recover the private keys for the exchange’s cryptocurrencies.

Hackers are not just testing how well exchanges guard their crypto-assets. Personal details and account details are also targeted with four exchanges affected during 2019: Binance, Coinmama, GateHub and QuickBit.

The number of people affected is estimated to be around 2.11 million for all four instances combined. There was also the BitMEX leak which reportedly affected more than 30,000 accounts.

9. Derivatives Trading is Flourishing

Cryptocurrency derivatives trading enjoyed phenomenal growth in 2019.

New products and players entered the market with a few examples being:

Bakkt launched their bitcoin futures contract in September,

Binance acquired derivatives exchange JEX to introduce futures contracts, and

The launch of Interdax, the first competitive cryptocurrency trading platform, in November.

Read about the history of bitcoin derivatives on the Interdax blog which provides a longer term overview of the sector’s development.

Analytics services centered on derivatives trading have also blossomed. To name a couple: CoinGecko launched their derivatives analytics dashboard in October. IntoTheBlock have launched their product towards the year end combining order book and on-chain data for cryptocurrency traders.

Looking forward, derivatives are likely to solidify their position in the cryptocurrency market. A greater number of players in the exchange market means more aggressive competition, benefitting traders. Exchanges may compete on fees and on other factors (e.g., offering a range of innovative instruments).

Options trading is likely to gain momentum in 2020, with the CME set to launch options trading for bitcoin in January.

10. Halving Hype

Litecoin’s halving was another major event this year with block reward halvings in general being a major theme.

We find both excitement and dismissal amongst cryptocurrency pundits regarding Bitcoin’s block reward halving in May 2020. The event will reinforce Bitcoin’s limited supply and could spark a new wave of demand. Others argue that the event is priced in already with major players already aware of its impact.

Altcoins based on Bitcoin have a tendency to rally prior to their block reward halvings as we saw with litecoin (LTC) in the summer. LTC-USD started the year around $20, soared to highs of $100 around the time of the halving and has since fallen around 70 percent.

Litecoin mining rig. Image by WorldSpectrum from Pixabay.

Bitcoin has behaved differently to altcoins, at least with the limited data we have. Halving events seem to have a delayed effect for Bitcoin, where a new all-time high was established roughly 10–20 months after each halving.

One thing to watch closely in the years to come will be the fee revenue earned by miners as a percentage of the block reward subsidy. Research released in October by Hasu, James Prestwich and Brandon Curtis showed that the falling block subsidy may be a threat to Bitcoin’s security in the decades to come.

Miners may not be incentivised to secure the network if they cannot collect enough fees from transactions. If the fees, as a percentage of the block reward, continue to decline then Bitcoin might be in trouble in the long term as miners lose interest and security dwindles. But if transaction volumes are high enough, miners will be incentivised to secure the network by earning fees and the falling block subsidy will not matter.

Are your top ten events/themes for cryptocurrency in 2019 different to ours? What do you think is in store for cryptocurrency in 2020?

Let us know by leaving a comment below. If you liked our review of bitcoin and cryptocurrency in 2019, clap for the article.

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