2019 In Crypto: Taming The Wild West

As Bitcoin and the blockchain industry conclude their opening decade, I’ve been reflecting on the latest chapter of our exciting journey. For those of us working to support continued disruption and radical development across the space, 2019 didn’t disappoint.

We are expecting another fork of Bitcoin, if it has not happened already. In addition, the most significant update to Ethereum 2.0 will happen soon, giving birth to a new generation of blockchain technology. Not tied to computing power, it should be several times more productive. Chinese data centres will lose their edge over other miners, and if this coincides with an economic crisis, the price could rise dramatically.

An upgrade could give Ethereum a new lease of life and claw back some of the market share it lost to Bitcoin, but I am not persuaded. The ICO market is dead, IEOs are damaging an already broken fundraising market and the AIO model is not yet a viable option. The tokenization of everything never happened, may now never happen and I doubt ETH will ever regain its previous highs in relation to BTC.

It’s not all bad news. Since the fate of altcoins are in their “grandfather’s” (Bitcoin) hands, if BTC skyrockets, probably in 2020 around the time the block reward is halved, Ethereum will benefit too. Previous halvings in 2012 and 2016 triggered huge pumps in price, and I see no reason the herd won’t stampede in the same direction again.

Regulations and product launches will have an impact in 2020 but let’s be clear: China is the biggest game in town. The Chinese Central Bank has continued its war on crypto, recently closing 200 Chinese cryptocurrency exchanges. The country’s national debt, including corporate, household and government debt, is now over 300% of GDP, higher than the US and all EU countries. Some smaller banks have closed, taking depositor funds with them, and its real estate and government bond bubbles have been growing for some time.

I see China on the verge of a serious financial crisis and cryptocurrencies will be the only option for those looking to protect their capital. When the crisis comes, if not now then by 2021, it will be a pivotal moment for Bitcoin and could cause an exponential increase in value. There are signs of a recession in the US and the EU too, and I wouldn’t bet against a Chinese crisis spreading to the US, or vice versa.

We saw some good and bad propositions from the tech and finance world last year, and some interesting regulatory responses to them.

Facebook's Libra and Telegram's TON projects have grabbed the headlines. Although very different, both projects fell victim to a hostile regulatory environment and were eventually reined in by the SEC.

The SEC wants to run the show and their interventions in 2020 should clarify the definition of a security. It’s hard to say how that will affect different projects but high-profile cases like Telegram and its TON token may be our bellwether. I’ll also be keeping a close eye on the Managed Stablecoins and Securities Act 2019, a legislative proposal to change the definition of a security to include all stablecoins.

The SEC is the biggest fish in the pond but it is actually the smaller nations who are moving fastest. Many nations - Germany, Holland, Switzerland, Belarus, Estonia, Lithuania, Montenegro, South Korea and Singapore – have introduced or are working on blockchain-related regulations. Others have seized the opportunity to corner a specific sector’s need for crypto regulations, with Malta and Gibraltar leveraging their expertise in online gambling.

Larger global players like China, Russia, the EU and the US have understandably taken a more cautious approach, though even they have shown an appreciation of the technology and a desire for a seat at the table. Sitting on the sidelines is no longer an option.

Crypto-anarchists and libertarian purists might dislike like the rise of centralised, pegged stablecoins (over 60 and counting), but many have found them useful, as their market share and proliferation shows, and I believe we have only scratched the surface of use cases for stablecoins.

I am not at all surprised that gold-backed and asset-backed stablecoins have gone nowhere fast, given the difficulty in verifying the collateral behind them. So fiat-pegged coins will lead the way for now, and the world of remittance – imagine borderless, instant payments with low fees and no charge-backs - is just one area they could transform.

Centralized, subject to proper oversight and backed by real assets, these tokens have huge disruptive potential, but don’t forget whose lunch they’re trying to eat. Only this month, the ECB warned of the dangers of stablecoins to a fragmented European landscape. Stablecoins have a big target on their backs.

Facebook's Libra coin may have briefly seemed the best prospect but I don’t see it being approved. Too many data scandals and enemies in the US government. In theory a centralised stablecoin with good KYC should be useful to the economy but Zuckerberg is not the person I’d want in charge. As the corporate support for Libra melts away and legislators continue to talk about the break-up of big tech, I put Libra’s chances of success at close to zero.

Having initially rubbished the potential of cryptocurrencies, central banks across the globe are now engaging in their own internal research. Although they’re not decentralised or competition for Bitcoin, these digital currencies could reduce friction and unlock capital.

Unfortunately, not everyone is convinced. Elvira Nabiullina, head of the Russian central bank, confirmed that the regulator has been studying digital currencies, but sees “no obvious need to issue a national cryptocurrency. [It’s difficult to know what] advantages a national digital currency gives …. in comparison with existing electronic non-cash payments. There are many risks, and the advantages may not be obvious enough”. I hope she changes her mind, or Russia could easily find itself in no man’s land while other nations take the lead and reap the rewards.

Venezuela’s Petro coin made global news but probably not for the right reasons, and certainly not for the benefit of its citizens. China is further down the path to a digital currency with a stream of new legislation and clear bureaucratic commitment. But it’s countries like Sweden (e-Krona) and Uruguay (e-Peso) that may end up being first to launch a credible national cryptocurrency. How they fare will tell us if national digital currencies are a trend or a fad.

More and more small, unprofessional crypto exchanges are disappearing. Every week we hear about another “hack” (the list is here). Maybe some aren’t hacks at all, just a smoke-screen for exit scams. We’ve seen CEOs of exchanges disappear, along with the money (IDAX, for example). In a well-regulated environment, it’s more difficult for shady operators to create exchanges overnight with no infrastructure, lawyers, support staff or clue how to run a credible enterprise. Only the most trustworthy exchanges, like KickEX, which operate within the law, will survive. A market consisting of a few high-quality exchanges is far healthier for consumers than one with thousands of options but no guarantee that your money is safe.

Referral programs are surprisingly powerful these days. When we launched KickRef, 7,500 people joined on Day 1, which we did not expect at all. Other referral programs such as Civic’s also showed good results with over 100,000 users, though still short of the KickRef performance.

I’m still surprised that people participate in what I see as corrupt pyramid schemes such as OneCoin and Prizm. I don’t understand how you can put your money down on nothing but a promise. Even worse, I don’t know how anyone can invite friends and family to get involved too.

It’s often said that people, especially the Chinese, act only in their own personal interest with no regard for others. Perhaps that explains how PlusToken, the biggest scam of all, raised $3 billion.

If you’re thinking about joining a referral program, here’s some free advice: If it requires some kind of up-front payment, run a mile. But before you do, throw something (particularly heavy) in the face of the person who referred you. They’re not your friend.

Bitfinex continues its dance with US government over alleged questionable financial practices, and the company has yet to secure the return of its frozen $850 million. Bitfinex’s IEO token has fallen below the initial sale price and its Tether stablecoin has slowly lost market share to the competition. But despite all of this, Bitfinex remains, for now, one of the biggest players in the game.

Bitcoin co-founder Craig Wright has not fared much better in the courtroom or the court of public opinion. His defamation case against Roger Ver was dismissed in the UK courts and the self-proclaimed Satoshi Nakamoto then lost his case against the Kleinman estate. That last loss may hurt the most as he now has to relinquish the associated IP and 50% of the mythical Tulip Trust portfolio (over a million Bitcoin plus forks if genuine!). Taxes due on the estate alone would decimate the crypto markets but no one seems too concerned.

The Telegram appeal is another legal action to watch closely. The Durov brothers may have a case that their token is not a security and we’ll see how well they make that case at their SEC grilling in January. Regulators are looking to make a stand (and some headlines too) but the Durovs conducted their sale with investor interests at heart, so they will most likely walk away with a fine.

Regulators have successfully curbed the proliferation of ICOs and if you read my previous views on the subject, you’ll know I am glad they finally stepped in. The ‘Form D’ backdoor is still being used by some persistent actors to attract accredited investors outside SEC jurisdiction, but for the most part the recklessness that poisoned both sides of the ICO model has been tackled.

The SEC has created precedents by suing and settling cases like Kik and Block.one. Those actions have led to a steep drop in the number of ICOs, as investment interest focuses more than ever on compliance.

As I said in 2018, IEOs are even worse than ICOs and were destined to the same fate. What some exchanges are doing - faking their volume, artificially pumping prices and deceiving their own customers - is nothing but fraud. The sooner transparent, ethical exchanges like KickEX become the gold standard, the better for everyone (except the fraudsters).

Many now feel that security tokens, utility tokens and ‘centralized’ blockchains are the next frontiers with great potential. Real equity backed by utility and real results can be the basis for an enormous market to flourish in the STO paradigm.

Last year was a typical roller-coaster ride in the blockchain world and I’ve mentioned just a few of the many events that rocked the sector in 2019. As the space matures, we at Kick Ecosystem look forward to yet more radical change ahead. The age of security tokens beckons and we’ll be looking to harness their potential, alongside our own fair, transparent AIO model.

Bitcoin has proved its resilience and we’ve seen some early promise from blockchain solutions such as loyalty programs and supply-chain verification. Regulators and traditional financial organizations continue to lock horns with big tech and established crypto businesses, but any clarity that produces will be great news for our industry as a whole.

At Kick we’re simply focused on delivering an exchange which redefines how digital assets are traded. Set for public launch early this year, KickEX is a truly next-gen addition to the Kick Ecosystem which has institution-grade technology, low fees and some unique trading tools designed for professional traders. We’ve been working with some of these expert traders to develop our innovative features, and their feedback during our alpha testing process has been both invaluable, and overwhelmingly positive. Whatever happens to the crypto markets in 2020, we’ll be ready.

It could be the humanity begins to reap the rewards of blockchain technology and digital currencies, but ultimately the global economy may decide crypto’s future for us.