The Bright Side of the 2018 Bitcoin Bear Market

Bitcoin Price expectations for the year 2018 were quite high as 2017 was drawing to an end. Enthusiasts and influencers alike, came out with price predictions ranging from moderately high to crazy. If those predictions were anything to go by, the current bitcoin price will fall somewhere between $30,000 and $60,000. The bitcoin community was at fever pitch at the time and very few people could have envisioned the current state of affairs with regards to the price. The 2017 bull market was also unique because it came with mass media attention which was expected to translate into mass adoption at an exponential rate. Some members of the bitcoin community had experienced previous bear markets and knew prices would fall again but even they are unlikely to have expected a bear market that would go on for over 10 months. This is however the reality today. In spite of the bullish sentiments and the media attention, the price eventually fell and ushered in a bear market in 2018. The bitcoin price now sits at 6200 — a price level which has served as a key support level as lower highs have been recorded throughout the year.

One unique thing about the current bear market is that it is taking place in spite of several positive signs. The last time about 70% of the bitcoin value (in dollar terms) got wiped away, Mt. Gox, the largest and most important exchange as at January 2014, got hacked. This time around, the bitcoin market is not actually down as a reaction to bad news. Positive developments like the implementation of Bitcoin Improvement Proposals (BIPs), friendlier government regulations and the building of useful crypto related products and services are on-going. In addition, the fundamentals of the bitcoin technology are better than ever. Since it is easy to get engrossed in all the negativity that comes with the bearish trends and miss all the improvements being made, I will, in this post, throw more light on the various positive developments in the bitcoin space regardless of the low prices.

Bitcoin has even Stronger Fundamentals

The price of bitcoin soared in 2017 but it was common to bump into complaints about the slow speed of the bitcoin network or how expensive the network fees were, on online bitcoin community forums. Interestingly, the price has rather plummeted this year as solutions to the problems have been implemented.

Important BIPs like BIP 141 and the Lightning network have helped increase the speed of the bitcoin network and lowered transactions fees. The implementation of BIP 141, also known as segregated Witness (Segwit) has reduced congestion on the bitcoin network by reducing the size of transaction data sent to the blockchain. The reduced size of transaction data means more transactions can now be included in blocks. Segwit has been very successful — reaching 40.718% of all transactions at the time of writing.

In the same vein, the implementation of the Lightning network which was proposed in 2015 further frees space on the bitcoin network by moving smaller recurrent transactions to a second layer.

BIP 114 by Johnson Lau as well as BIPs 116 and 117 by Mark Friedenbach are all work in progress to implement Merkelized Abstract Syntax Trees (MAST) on bitcoin. The MAST technology is also aimed at reducing the size of transaction data recorded on the blockchain.

On the privacy front, developer Gregory Maxwell is working on Confidential Transactions. The proposal, if implemented would bring privacy to bitcoin by hiding both transaction amounts and addresses.

While an indicator like the number of unique bitcoin addresses seems to be mirroring the price movements, the hashrate of the network is defying the current price and pointing to study growth. The Hashrate, which represents the mining power dedicated to mining on the bitcoin network, has been growing throughout 2018. At the time of writing, the bitcoin hashrate was 52,252,797 trillion hashes per second. This figure was only 14,975,581 TH/s at the beginning of the year. Since large-scale bitcoin mining is now a capital-intensive venture, the addition of mining power to the network when price continues to drop shows that miners are content with the long-term prospects of bitcoin.

Less Hostile Government Institutions and Policies

The fear of governments banning bitcoin has greatly subsided. Having witnessed the short-lived effects of China banning cryptocurrency exchanges, the question for myself and other crypto enthusiasts is no longer “what will happen if more governments ban bitcoin” but “How government regulations would affect crypto businesses and activities in various jurisdictions.”

The ban on Chinese Cryptocurrency exchanges did have a cursory negative effect on the bitcoin price. However, South Korea wasted no time in taking the opportunity to become a more prominent “cryptocurrency state”. The hostile regulation from China simply pushed out several crypto businesses to other jurisdictions.

It has become more obvious in 2018 that most government agencies are keen on understanding cryptocurrencies and coming out with crypto-related laws that would engender innovation. It appears that governments are now more focused on curbing the bad practices in the crypto space without being hostile to crypto in general. The rationale here is to avoid fall behind when it comes to innovation. Testimonies by both the SEC and CFTC chairpersons before the U.S Senate earlier this year revealed that the agencies had no intention of being hostile to the cryptocurrency industry.

More Crypto Projects and Products

Both crypto businesses and those from the traditional financial sector continue to build and lunch products for different groups of clients. For instance, Coinbase, a giant in the crypto industry, has come out with a whole suite of products for institutional investors. Binance, another top crypto exchange, launched it’s incubation program to nurture more crypto startups. Companies like CryptoFish are working hard to make it easier for users to be on-boarded to the ecosystem.

The more traditional companies are also participating more in the bitcoin economy this year. This wasn’t the case in 2017 when most financial institutions either stuck to their “wait and see” approach or viewed the bitcoin technology as a flash in the pan. Many of these companies are now either releasing crypto-related products for clients or acquiring crypto businesses. An example is the acquisition of of Poloniex cryptocurrency exchange by Goldman Sachs-owned Circle.

It has been often said by long-time crypto enthusiasts that it is during bear markets that most progress is made in terms of technological improvements and the building of new projects. It is also true that bear markets are characterised by negativity and noise that drown out these developments. Unplugging from the crypto noise and focusing on real developments like the ones touched on above, makes it obvious that the bitcoin train is on track and headed in the right direction regardless of the price movements. It is only a matter of time before the current slump in price, like previous ones, gives way for more positive sentiments and upward price movement. The price is sure to eventually take off and reflect the improvement in the fundamentals that give bitcoin its value.