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Top Crypto News – 23/02/2018
Five reasons 2018 could be the best year yet for cryptocurrencies
In an earlier piece for CNBC, I explained why a potential cryptocurrency bubble could burst in 2018. Many people asked me afterward: If I’m so skeptical about the space, why am I invested in it?
Let me clarify. I’m someone who always calculates the potential upsides and downsides, and I think many people take unnecessary risks: They either invest too much or too little because they don’t do proper analysis.
So I want to highlight five reasons why 2018 might be the best ever year for cryptocurrencies and why I’m heavily invested in them.
1. The work on scaling issues
Bitcoin (BTC) is the most important cryptocurrency. Most government-backed money that goes in and out of crypto goes through bitcoin, so what happens to the original cryptocurrency affects the entire market.
The token’s market dominance stood at about 40 percent as of Wednesday. By my estimates, however, it’s clear bitcoin’s market dominance should return to 75 percent of the entire space.
I actually see a 150 percent potential upside in bitcoin for 2018.
Why? Well, BTC is still dominant. It has the biggest user base and the biggest industry. Still, it faces a challenge in scaling up for wider use.
Bitcoin now can’t handle more than six or seven (or, with the “Segregated Witness” protocol upgrade, it’s 12 to 14) transactions a second. Compare that with credit cards, which involve thousands of transactions per second, so the criticism about bitcoin’s ability to be useful at larger scales is understandable.
The scalability challenge results in high fees as well.
What is the solution? It is the so-called second-layer peer-to-peer off-chain networks. To cite an example, look at the Lightning Network. Created by Blockstream, the Lightning Network allows for transactions off the blockchain, thereby decreasing the transaction costs almost to zero and increasing the speed and scalability almost infinitely. And it’s just getting started. As you can see from this map, more and more nodes as well as channels are being established. It is growing exponentially.
In the coming months, we will see a sharp uptick in transactions and the use of more bitcoin in these channels. What’s more, the Lightning Network doesn’t have any fee.
In other words, second-layer networks solve the problems bitcoin faces — scalability and lack of liquidity. That could be a key reason why bitcoin surges this year.
At the end of 2017, I foresaw that bitcoin would drop as low as $5,000 — but it could potentially climb to as high as $60,000. Lightning Network will have a big impact on the potential upside.
There are also other second-layer projects like Rootstock that would allow computations similar to those of ethereum (a blockchain-based computing platform that supports another cryptocurrency named ether) to be done through bitcoin.
Exciting projects such as those could cause a significant spike in BTC. I would dare say in the realm of 60 to 70 percent with the potential upside of 100 percent — and maybe even more.
2. Large scale and more legitimate ICOs
Like last year, initial coin offerings (ICOs) will impact the ethereum network because ICOs usually require plenty of ether. That will buttress the demand for the platform’s digital coin. More legitimate ICOs will lead to greater interest in ether as we are already seeing with the billion-dollar ICO of messaging app provider Telegram and that of Kodak.
That means we could see a rise in the market cap of ethereum to $200 billion by the end of the year from less than $90 billion on Wednesday. The cryptocurrency’s price could possibly double to $2,000.
Though other platforms could see similar gains, I believe ethereum will be the main focus.
Many believe regulations hurt markets, but that is a short-sighted perspective. In the long run, companies require rules for the sake of legal stability and certainty. Regulation gives users and institutional clients the confidence to invest.
We saw something similar when Japan started regulating bitcoin. The market dropped initially, but it rose eventually. Ditto in Australia.
Other countries could follow the same rule book — I think we are going to see something like that with South Korea and probably many others — but the market’s fate will be no different than after what played out in Japan and Australia.
4. A lot of execution and usability
There are several start-ups like my own that offer debit cards to help people spend their cryptocurrency holdings.
That means the number of users and merchants is set to increase sharply in 2018.
This would burnish the reputation of cryptocurrencies, with more and more companies trusting them. The firms that execute well this year will stand out and create a survivorship bias — where a few companies thrive and others fail, but people focus on the winners and ignore the losers.
Most start-ups bomb, but the spectacular successes of companies such as Facebook and Airbnb help mask those failures. Likewise, the success stories of a few entities in the cryptocurrency space will overshadow the negative news of several going bankrupt.
5. Institutional investors
The last reason why 2018 will be a stellar year for cryptocurrencies is that this will be the first year of solid institutional money flowing into the ecosystem.
It is estimated that $10 billion to $12 billion has so far flown into the crypto ecosystem, but that’s nothing compared to what institutional funds could invest. Since those first funds propped up the market to around $500 billion, the next $10 billion to $12 billion, which is peanuts for some funds, could double the market cap this year.
To sum up, the likelihood of all five factors happening is not 100 percent. But I still see a probability of 70 to 75 percent. And each one of them might grow the market’s overall size 50 to 100 percent — maybe even 200 percent.
If you combine those factors, the market’s upside potential could rise to up to seven or eight times the present levels. While this might not be as much of a multiple as what we saw in 2017, it is much higher in absolute terms. That could make 2018 the most successful year in crypto ever. Additionally, the growth might not be based so much on hype or hope as it would be on solid foundations.
That being said, the reader should not see this piece as investment advice, and should definitely read my discussion of potential risks. When you dismiss real risks as fear, uncertainty and doubt (FUD), you could be blindsided.
Written by CNBC
French Regulator Says No to Online Crypto Derivatives Ads
France’s stock market regulator released a statement about cryptocurrency-tied derivatives on Thursday, which includes a curb on the advertising of such products.
In its statement, L’Autorite Des Marches Financiers (AMF) said that trading platforms should not be allowed to market cryptocurrency derivative products electronically, per regulations that cover derivatives more broadly. The publication followed a months-long review process, according to the AMF.
The agency said:
“The AMF concludes that a cash-settled cryptocurrency contract may qualify as a derivative, irrespective of the legal qualification of a cryptocurrency. As a result, online platforms which offer cryptocurrency derivatives fall within the scope of MiFID 2 and must therefore comply with the authorisation, conduct of business rules, and the EMIR trade reporting obligation to a trade repository. Above all, these products are subject to the provisions of the Sapin 2 law, and notably the ban of advertisements for certain financial contracts.”
The EU’s Markets in Financial Instruments Directive (MiFID II) is an update to previous legislation, with the stated goal of providing greater transparency across asset classes in the name of investor protection. The initiative came into effect on Jan. 3.
The AMF’s missive is the latest from the agency on the topic of cryptocurrencies, coming months after it first weighed in initial coin offerings (ICOs). In October, the agency launched an ICO-focused initiative, dubbed the Universal Node to ICO Research Network (UNICORN).
The effort, according to statements at the time, was aimed at “offering to these carriers of projects a frame allowing the development of their operations and to ensure the protection of actors and investors wishing to participate.”
Other regulatory bodies within the EU have been looking into the issue of crypto derivatives as well.
The European Securities and Markets Authority (ESMA) is investigating if such contracts comply with MiFID rules, and announced in January that it was seeking public input on potential rule changes.
Bitcoin and French flag image via Shutterstock
Written by CoinDesk.com
SEC Advocacy Director Says Crypto Investors Shouldn’t ‘Flip A Coin’
An investor education official with the Securities and Exchange Commission (SEC) had a simple message to would-be cryptocurrency investors this week: think before you leap.
In a blog post published Wednesday, Lori Schock, director of the SEC’s Office of Investor Education and Advocacy, noted that cryptocurrencies and related investments are still relatively new, arguing that some investors “may not know exactly who [they] are dealing with, where [their] money is going or what [they] are getting in return.”
Indeed, much of the post highlighted the risks associated with investing in cryptocurrency-related markets, advising readers to “always do thorough, independent, research of the product.”
The blog post echoed past alerts published by the SEC as well as the Commodity Futures Trading Commission (CFTC). Last week, the CFTC issued a warning on “pump-and-dump” groups operating in the cryptocurrency market.
Other warnings have cautioned investors against trusting retirement schemes which claim government agency backing or publicly-traded companies that promote their pivots to business lines related to cryptocurrency or blockchain tech.
In the end, Shock wrote that “cryptocurrencies may be today’s shiny, new opportunity but there are serious risks involved” – and as a result, investors should tread lightly before putting their money into the market.
“Proceed with caution, do your research, evaluate your financial goals and most importantly, don’t flip a coin when you’re making investment decisions,” she concluded.
Bitcoin image via Shutterstock
Written by CoinDesk.com
46% of Last Year’s ICOs Have Failed Already
ICOs Are Even Riskier Than You Think
Given enough time, everything withers and dies, from the most robust institutions to the most popular crowdsales. No one expected all of 2017’s ICOs to last the course. The pace at which they’ve withered and died may come as a surprise though. Tokendata, one of the more comprehensive ICO trackers, lists 902 crowdsales which took place last year. Of these, 142 failed at the funding stage and a further 276 have since failed, either due to taking the money and running, or slowly fading into obscurity. This means that 46% of last year’s ICOs have already failed.
The number of ICOs that are still a going concern is actually even lower. An additional 113 ICOs can be classified as “semi-failed”, either because their team has stopped communicating on social media, or because their community is so small as to mean the project has no chance of success. This means that 59% of last year’s crowdsales are either confirmed failures or failures-in-the-making.
A Digital Graveyard of Broken Promises
Trawling through 900 ICOs in one sitting is a deeply depressing experience, news.Bitcoin.com can report. Abandoned Twitter accounts, empty Telegram groups, websites no longer hosted, and communities no longer tended are par for the course. A digital graveyard, complete with metaphorical tumbleweed, characterizes the crop of 2017 that decided to take the money and run. Many raised zero; some raised a couple of thousand dollars; and a handful raised over $10 million. In each case, the end result was the same though: no MVP, no alpha release, and no contribution to the decentralized web for the betterment of humanity.
Many of the dead ICOs were doomed from the start. It will come as no surprise to learn that projects such as Clitcoin, Neverdie, and Zero Traffic didn’t make it. Some, which fell flat at the fundraising stage, are doing it all over again this year and hoping that 2017’s failure can be written off as a trial run. Freight trucking platform Doft is one such example. Looking at the countries of origin for failed ICOs shows that developing nations – and an entire continent in the case of Africa – are over-represented. Nevertheless, every major country and continent features in the list of shame.
Many of the 531 ICOs that have failed or are failing from last year looked sketchy from the very start. In most cases, investors were able to spot the signs and steer clear. Not everyone escaped unscathed though: these projects still raised $233 million between them. With ICO mania showing no signs of abating, there’s no reason to expect this year’s crowdsales to fare any better. Thanks to diminished returns, increased competition, and a never-ending stream of opportunistic ICOs, crypto investing in 2018 is riskier than ever.
Written by CoinDesk.com
Bitcoin Fees Are Down Big: Why It’s Happening and What It Means
$26 down to $3.
The average cost of sending a bitcoin transaction is cheaper than it’s been in a year and a half, showing the price isn’t the cryptocurrency’s only unpredictable metric these days.
But with all the debate about growing fees, this might come as a surprise. After all, it wasn’t so long ago that fees were so high a group of prominent investors and miners created a whole new version of bitcoin mostly to keep fees lower.
Backing up a bit, much of the conflict centered on the fact that while called “fees,” these expenses are best considered as transaction costs that are necessary to the network, as necessary as paying for someone to deliver a protocol service, be it SMS, VoIP or email, or even a pizza.
This is because bitcoin is a software that requires all of the many thousands of computers that run it to stay in sync. To do so easily, there’s a limit on how much data the network can process at intervals, and users need to pay more to get their transactions in at times of congestion.
So, as bitcoin grew more popular in the last year, fees skyrocketed to over $25, according to a graph from data website Bitinfocharts.
Bitcoin users, those who truly rely on the protocol for essentials, have been affected by this, as were those who believed bitcoin could be competitive with legacy payment systems.
But, bitcoin fees have fizzled out, declining since the end of December.
So, why did fees take a nosedive? The simple answer is users are making fewer transactions right now. In December, there were roughly 400,000 transactions per day, while today bitcoin is seeing only 200,000, according to data from Blockchain.info.
“I think its really simple,” BitGo engineer Mike Belshe told CoinDesk. “There is substantially less transaction demand.”
The question, he added, is why has there been a decrease in transactions?
SegWit and beyond
If Twitter and Reddit are any indication, sentiment on the matter tends to be influenced by personal politics, in this case, where users stand in bitcoin’s long-standing block size debate, which, at its core, was about network economics.
Popular Twitter figure “Armin van Bitcoin” cheered that the low fees mean the “scaling debates are now a thing of the past,” pinning the development partly on growing adoption of Segregated Witness, a scaling feature at the center of bitcoin’s long-raging fee debate.
And there is truth to the claims. SegWit reduces transaction fees and adds more space to the blockchain, but it still isn’t widely adopted, so it’s hard to say how much it actually helped. There hasn’t been much of a recent increase in SegWit use either. For the past several months, only about 10-14 percent of transactions, according to SegWit tracking site SegWit Party.
Plus, SegWit doesn’t reduce the number of transactions, it makes each one cheaper.
Another possibility, according to Belshe, is that fee prices “finally forced” some large transaction processors to implement a technology called “batching,” rolling many transactions into one, to leave more space on the blockchain.
Indeed, exchanges like Coinbase have said they were working on implementing the feature in the past. And Thursday, cryptocurrency exchange ShapeShift announced it now batches transactions, making a point that it makes up 2 percent of all the transfers that occur on the bitcoin blockchain.
However, it’s a theory that’s difficult to get hard data on, unless an exchange were to formally announce that they were using this technique. “This is hard to confirm with 100 percent certainty,” Belshe said.
Still, he argued that even if just one large exchange started batching transactions, it could have a huge impact on the overall transaction load.
These sorts of technical theories add to the idea that developers and those building services on top of bitcoin can make optimizations in order to free up space on the blockchain, without compromising on some of its core features.
“This is why Bitcoin Core worked so hard to get ‘layer-two solutions’ working, and why they focus so much on optimization of the size of transaction through various things like Schnorr and Bulletproofs,” XO Media CEO John Carvalho said.
“They are doing everything to minimize the footprint of every type of transaction attached to bitcoin because they are all stored forever,” he added.
Others, especially those critical of how bitcoin developers favor a smaller blockchain and limited transaction space, argue the lower fees are a consequence of people that are sick and tired of the high fees leaving bitcoin.
“Bitcoin isn’t useful for anything that involves low fees so people are migrating to alternatives. this has the consequence of lowering the fees on bitcoin,” said Ryan X. Charles, founder of Yours, a media startup building on bitcoin cash.
Charles notably moved his startup off of the bitcoin blockchain last year, migrating to alternatives before building on bitcoin cash.
It’s possible that some users are doing the same. Payment processor Stripe stopped accepting bitcoin in January payments due to the high fees, and BitPay, a startup that offers payment services over bitcoin has differentiated into supporting multiple protocols for its merchants.
Yet, if they are pushing users elsewhere, it’s not clear where they’re going. Bitcoin cash, the cryptocurrency created as a cheaper alternative to bitcoin, still has about 10 percent the number of transactions bitcoin currently does.
“Apparently [high fees] don’t incentivize folks to switch to bcash,” BitGo engineer Jameson Lopp said.
Bitcoin developer Meni Rosenfeld doesn’t think so either. In fact, he disagrees with both of the above theories.
“The main reason for the drop in [bitcoin transaction] fees is not SegWit adoption, and it’s not people moving to [bitcoin cash]. It’s simply that the craze for buying cryptocurrencies in general has calmed down,” he tweeted.
Indeed, there’s been a downtick in outside interest in bitcoin. A lower price has less new investors searching for bitcoin on Google and coming in to buy and trade the cryptocurrency.
This view seems supported by the fact that the second most valuable blockchain by market cap, ethereum, has also seen a dramatic drop in fees in recent months. The same goes for litecoin, clocking in at number five, and XRP, at third place.
Charles also argued it’s possible crypto’s waning hype cycle has contributed to lower fees.
“I wouldn’t be surprised if ethereum is also lower due to the decline in market value. There may simply be less demand for sending transactions across all blockchains. We went through a hype cycle,” he told CoinDesk.
And it’s always possible the low fees were caused by a mix of the factors described above.
What do lower fees mean for users? In short, it shows that under the current setup, fees might fluctuate over time.
The hope is that – eventually – fees will always be “low,” with the word low having somewhat of a relative definition. After all, a low-cost airline flight may be better than an expensive bus ride.
In this way, supporters hope that bitcoin will one day offer the best of both worlds, supporting high demand and “low” fees that reflect the quality of service, while also supporting miners, computer operators who devote real-world costs to securing transactions.
“The fee market is necessary as a counterweight to market price. [Theoretically,] demand for blockspace is infinite, so there must be levers to manage it,” Carvalho said.
In the meantime, fees could continue to decline, creating a new standard of “low” that might be friendlier to today’s internet users. Carvalho and Rosenfeld, for instance, think the much-touted Lightning Network will help get bitcoin to that point, as it moves more transactions off of the main bitcoin blockchain.
If Lightning really takes off, then low fees may become another problem, as they might not be enough to defray mining costs when the network finally produces all 21 million bitcoin.
For this reason, developer Greg Slepak had an almost ominous-sounding view of the future, arguing that users should “take the opportunity” of today’s lows fees, adding:
“It might not come again.”