The End of Crypto Winter: the bear market of 2018 and what has happened to Bitcoin and Altcoins

Manipulation, futures, regulatory crackdowns, AML, KYC and possible reasons for low volume on crypto markets in Q1 2018 so far.

Cryptocurrency is said to currently be (or have been) in a bear market, which some are calling “crypto winter” (bitcoin.com, coindesk, outlier ventures). Market observers are suggesting that “the quality of individual cryptocurrencies is beginning to have a greater influence on their market prices”, and the obvious reason for the downwards spiral of altcoins are their strong correlation to Bitcoin (#1, #2, #3, #4). Bitcoin fell by nearly 70% from Dec 17, 2017 and Feb 6, 2018 (#1, #2), taking with it the whole cryptocurrency market and entering a “corrective winter cycle”.

December 2017 brought an all-time high (ATH) for Bitcoin and Altcoins, the so-called “December wave”, introduced by what Super Crypto calls the “Bitcoin Manipulation Cartel”, which is “taming Bitcoin” in order to profit on futures contracts. The recent price decline of Bitcoin is “consistent with trading behavior that typically accompanies the introduction of futures markets for an asset” (#1, #2, #3).

“The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.” (Federal Reserve Bank of San Francisco)

Bans, regulatory crackdowns and regulations: 2018 marks the institutionalization of cryptocurrency

Since the beginning of 2018 the cryptocurrency game has changed. Twitter, Facebook and Google have banned cryptocurrency ads (attributed to the ICO hype), and the space transformed from anarchism to a regulated and institutionalized setting. Issuers and intermediaries of virtual currencies are largely getting regulated worldwide, although the legal status of bitcoin still varies substantially from country to country. Bitcoin magazine calls 2018 the “year of regulatory reckoning”, painting a picture of a stoney road ahead for ventures and startups in the cryptocurrency space.

“Regulators all over the world have begun to address the challenges presented by virtual currencies that mostly bypass regulated banks, financial firms, exchanges and central clearinghouses.” (marketwatch)

South Korean regulations in January had a big effect on the markets (#1, #2, #3), as in 2018 already a few important events have shaped the new era of institutionalization.

On March 7, 2018 the SEC argued that “digital assets, like coins and tokens offered and sold in initial coin offerings (ICOs), fall within the definition of a “security” under US security laws”, effectively causing an almost 10% price drop of Bitcoin.

After a long heist of the hackers who stole an estimated $524 million in NEM tokens from the cryptocurrency exchange coincheck (which was unsuccessful, as they were able to drain the funds and to stay anonymous), the exchange started to preemptively ban privacy-based cryptocurrency, as it is harder (or impossible) to trace in case of an emergency. This led to a ripple effect of regulations and general anxiety in the market, which further took the market volume and valuation of privacy-related cryptocurrency down. Dash went from $1598 in Dec 21, 2017 down to $322 as of now, and Zcash was $876 in Jan 9, 2018 (now $248). Monero for example went from an ATH of $474.57 in January 7, 2018 down to $165 at the time of this writing (Jun 2, 2018). This can also be attributed to the forking culture, which produced a total number of 6 Moneroj, but besides the long fork story of Monero (XMR), there is general uncertainty on the horizon, what will happen with privacy-centrist coins in the long run.

Conclusion

Bitcoin seems to have found its bottom at $7000, and we might see the market in recovery already. For all we know, “Crypto Winter” might be already over and we have entered “Crypto Spring”.

Instead of the “A Peer-to-Peer Electronic Cash System” as Satoshi Nakamoto has initially called it, we are currently missing the main aspect: cash. Visa ended their relationship with a large cryptocurrency card provider in Jan, 2018 and with that killing a lot of crypto-to-cash providers such as Cryptopay, TenX, Bitwala, Wirex and others (#1,#2,#3). Visa issuers and Mastercard are making it harder to buy Bitcoin, which hinders the mainstream adoption of cryptocurrency. At the same time on June 1, 2018 the Visa payment systems in Europe suffered a major outage, showing us that it could largely benefit from a more distributed system.

The massive over-regulations are currently hitting the wrong targets — the example of recent preemptive bans of ‘anonymity-focused coins’[sic] (Monero, Dash, Augur, Zcash) via the Japanese Financial Security Agency (FSA) on Japanese exchanges are “a wake up call to defend privacy coins”. This shows us that the cryptocurrency space is currently moving in the wrong direction. Mainstream adoption is hindered by the lack of (traditional) payment options with cryptocurrency, and over-regulation is a big problem, effectively creating problems for a lot of startups in the crypto and fintech space. Vitalik Buterin also recently shifted his views on privacy, making the discussion of “Transparency vs. Privacy” one of the hottest topics of 2018. As the markets recover, we might be losing something more important than possible crypto-gains: our right to privacy.