2019: The Ultimate Year for Cryptocurrency?

It’s January 2, 2019. Have you looked at the price of cryptocurrency lately? It’s low. Way low. And it seems to go lower every day.

This is a big concern for almost nobody working in the cryptocurrency space (except some ICOs that managed their money poorly). But it is a big deal if you’re trying to sell your coins for more than you them bought for. Will 2019 bring more misery? Or will you end the year driving a lambo?

Binance CEO Changpeng Zhao predicts 2019 will be the ultimate year for cryptocurrency adoption. I hope he’s using the word “ultimate” to mean “the best it will ever get” instead of “final.” Does it matter? Nobody can predict what will happen in 2019.

Fortunately for you, I love guessing games. Read on for a brief assessment of cryptocurrency markets at the beginning of 2019 and what we might look forward to this year. I’ll have more to say in the coming months.

(TL;DR–I’m more optimistic than Twitter and I have evidence to support my opinion.)

Dr. Helfman’s Prognosis

I suspect crypto will do well in 2019. Great projects coming online, huge leaps forward in technology, big financial companies making it easier for people to buy cryptocurrency, and more laws, especially in the U.S.

Will we have a 2017-type bull run?

Maybe. Your guess is as good as mine. Let’s look at some evidence.

More people are using cryptocurrency

At the height of the 2017 bitcoin mania, only 2–8 percent of people owned any cryptocurrency, depending on whose survey you believe. Knowledge is low and ownership virtually non-existent. I can attest to this. When I talk to people about my book, Consensusland, the first question most people ask is “what’s cryptocurrency?”

Yet interest is rising. The number of new bitcoin users grew in 2018 despite a collapse in price and media coverage. One-quarter of “affluent” millennials report holding cryptocurrency. Investment funds view cryptocurrency as a new asset class. In the U.S., curiosity abounds even though many people remain skeptical.

Brave browser is running on over 5 million machines. DENT wireless reports 7 million active users. Steemit data shows over 50,000 active daily users, including me. Ernst & Young is using zero-knowledge proof on Ethereum. IBM is using Stellar Lumens for its Blockchain World Wire. Metal launched its payment app and had to scale back its cryptocurrency rewards program because too many people signed up. Factom won a competitive grant from the U.S. government and secured several major clients. OpenNode launched the first payment system that runs on bitcoin’s lightning network. Dozens of cryptocurrency projects that were nothing more than whitepapers in 2017 now have functional testnets and in some cases running networks.

I could go on. My point is, there’s now evidence of actual cryptocurrency usage in real-world situations, continued growth in users, and opportunity to grow further.

Prices are at or near bottom

I don’t trade but I keep tabs on some Twitter crypto accounts and YouTubers so I have a sense of market sentiment. It’s low. Very, very low. Negativity abounds. The United Nations could pass a resolution to make bitcoin the world’s currency and the cryptosphere would shrug it off and buy a bunch of shorts. Mainstream media attention is almost nil. Here’s the chart for cryptocurrency’s total market cap in 2018:

I am not a trader and I don’t know how to do technical analysis. But I’m told when you see volume pick up without the price falling further, this signals a likely turnaround in the market. “Bull run” type of turnaround? I don’t know, not my bag. Maybe it drops another 80 percent? Supposedly bitcoin is hitting some important levels of volume and price. If true, it’s another signal that prices are more likely to go up than down.

Technology is Getting Better

Bitcoin’s Lightning Network is already reducing bitcoin transaction fees to fractions of a penny. DriveChain is attempting to make it easy for developers to improve bitcoin without having to fork off a new chain. Dozens of developers are working on “second layer” interfaces that leverage bitcoin’s features without actually making people hold it (usage still drives demand for bitcoin itself).

Ethereum developers are working on protocol upgrades to simplify the code and help developers build applications using ETH protocol.

New projects like Devvio and Holochain report unprecedented scalability.

Progress continues on other cryptocurrencies you probably haven’t heard of yet. For example, SALT Lending and Cindicator changed their user interfaces. DASH upgraded its network to confirm transactions more quickly. Steemit revamped its protocols to lower the costs of managing the blockchain and improve performance for users. Cardano upgraded pretty much everything. You can find many other examples of improvements that will boost the odds that at least a handful of cryptocurrencies will gain traction.

U.S. is Finally Getting Its Rear in Gear

Switzerland, Japan, Malta, Singapore, Hong Kong, and Estonia have rules and laws to help cryptocurrency flourish.

The United States does not. Why does this matter for a global commodity like cryptocurrency?

Because the U.S. has the most money in the world. Our stock markets are as big as all other stock markets combined. U.S.-based investment companies hold one-quarter of the world’s assets. None of that money is held as cryptocurrency. Do you know why?

Regulations.

U.S. regulations make no sense. We treat ICOs as securities even though the company has no ownership or stake in the related assets. We tax cryptocurrency as property. We trade it as a commodity. We regulate it through several unaffiliated agencies, each of whom have to apply and interpret laws that are not relevant to cryptocurrency. Large investment funds will not buy much cryptocurrency until that changes. Some will buy a bit here and there, maybe, but certainly not enough to risk reputational harm or lawsuits for squandering their clients’ money.

In 2019, Congress will debate the U.S.’s first cryptocurrency bill. Will that bill pass? As a former Congressional aide, I would never speculate. Crazy stuff happens all the time and a lot has changed since I left politics. But if I had to guess, I’d say the bill will probably pass, because it’s a niche subject that has bipartisan interest and few groups who want to lobby against it. It may take a year or two before it becomes law, almost certainly with amendments. The details of the final bill are important but the mere fact that Congress is trying to carve out a safe haven for innovation, development, and usage of cryptocurrency should give credibility to this asset class. This will help U.S. investors feel better about putting money into cryptocurrency markets.

Look at the big picture

The technology is improving, new projects are coming online, job listings are way up, and senior people from established financial institutions continue to leave their jobs for cryptocurrency-related ventures. Robinhood and TD Ameritrade are moving into the cryptocurrency space, offering safe and easy ways for non-technical people to buy a little cryptocurrency. Large investment funds and endowments have started buying small amounts of cryptocurrency. At least two well-established financial companies and a major stock exchange will soon open platforms for institutional investors to buy and sell cryptocurrency and cryptocurrency products.

True, cryptocurrency markets are highly speculative. Anything can send them downward. Bear markets don’t just switch to bull markets overnight. But if you’re looking for signs of a bull market, you will not find them until it’s too late. Bull markets look like this:

(Source: Who’s Really Responsible for the Strong Stock Market?)

This is a chart of the US stock market’s major index, the S&P 500. See that big drop? That was March 2009 after the price had fallen 30% from the beginning of the year (after falling +60% from its 2007 peak). At the time, the US economy was in tatters, unemployment was 10 percent, and policymakers warned of deflation and ruin. Investors had lived through a full year’s worth of prices falling, bankruptcies, and margin calls. Bank failures in the lending markets. Foreclosures in the housing markets. Taxpayer bailouts for large manufacturers.

That’s when the bull market started.

Bull markets start in darkness and despair. When you have a $100 billion worth of cryptocurrency chasing $200 trillion to $1 quadrillion worth of “things” that can be recorded on a blockchain and bought or sold at any time, it’s only a matter of time before the price reflects the upside.

Is that time now? 2019?

I don’t know but I can’t wait to find out.

(This post was repurposed from my Quora answer “Will 2019 be a bullish year for cryptocurrency?”)