At first glance, 2018 has been a rough year for the crypto sector. Bitcoin reached its record high December 17, 2017, surpassing $19,700, before subsequently dropping – and remaining remarkably stagnant – ever since. Things took a turn for the worse even still when Google and Facebook banned crypto ads earlier in 2018.
While prices may not have rebounded yet, I believe that 2018, overall, has been a net positive year for the cryptocurrency sector, and that all of the recent focus on regulation and oversight will pave the way for mainstream adoption in 2019. Let’s look at a few events that indicate why this may be the case.
Q3 hedge fund letters, conference, scoops etc
Regulation Establish Trust and Legitimacy, While Respecting Innovation
You may have heard people refer to the “Wild West Days of Crypto” — a so-called ‘unregulated era where everything goes’ as a predominant theme in the press. However, the IRS was one of the first U.S. regulators to issue rules governing cryptocurrency, announcing in April 2014 that U.S. based transactions involving virtual currencies would be taxed. 2017, with its dramatic price inclines and subsequent volatility, brought a kind of euphoria to the crypto space, and problems– including a variety of hacks, scams, and attacks. Clarification regarding how each of the different U.S. regulators were going to apply their rules to cryptocurrencies was overdue.
Thankfully, in 2018, the SEC declared that all cryptocurrency platforms that meet the definition of security must register with the SEC. The IRS went further and cracked down and announced a virtual currency compliance campaign stating that all U.S persons are subject to tax on worldwide income from all sources, including transactions involving virtual currency.
Some crypto-enthusiasts may be skeptical about the regulatory sector’s involvement in a space created to be unregulated, yet I believe the two sectors have successfully collaborated, which is in line with U.S. Commodity Futures Trading Commission (CFTC) J. Christopher Giancarlo’s vision for a ‘do no harm’ approach that provides a “proper balance of sound policy, regulatory oversight, and private sector innovation.”
With these new regulatory enforcement rules in place, the outside world began to take notice, and gradually, public sentiment about crypto began to shift, from a sector perceived as “not currently operating in good faith” to a sector viewed with respect and trust, given the proper regulatory oversight. Let’s look at several additional noteworthy events that marked a shift towards mainstream adoption.
Crypto Ad Ban Reversal
In a dramatic turn of events, Facebook and Google, two tech giants that banned all cryptocurrency ads in January and March of 2018, both effectively reversed their crypto ad bans just a few months later, in June and October respectively.
While we can’t know what exactly caused the shift, it is likely a result of a lot more proactivity surrounding crypto compliance. The tech sector was not the only major player to notice: Wall Street did, too.
Wall Street Gravitating Towards Crypto
Around the same time that major digital advertisers joined forces with cryptocurrency sector once again, major institutional investors began expressing interest in cryptocurrency and the blockchain as well. Over the course of the past year, it was announced that Goldman Sachs is considering how to use services that involve physical Bitcoin, Morgan Stanley is preparing to offer Bitcoin swap trading for clients, and that JPMorgan’s blockchain project is scaling effectively - and this is only a small number of the financial institutions exploring the decentralized technology space.
“I’ve been amazed that the strongest believers in cryptocurrency often start out as the most skeptical. But at some point the perception shifts, and for many institutions - I think we’re finally there,” Paul Chao, former trader at Goldman Sachs and founder of regulated Bitcoin exchange LedgerX said earlier this year.
Bitcoin ETFs, Launch of Bakkt, and Mainstream Institutional Adoption Ahead
In addition to recent Wall Street momentum, there are two other recent, exciting developments in the crypto sector that I believe will help pave the way for institutional adoption in 2019: the CBOE VanEck SolidX Bitcoin ETF, and the launch of Bakkt.
The former, although currently awaiting approval from the SEC, has distinguished itself in proposing a physically-backed model rather than a futures-based fund. Furthermore, the CBOE application also provides important security elements lacking in other applications, including custodianship and insurance. It’s no wonder, then, that institutional investors are excited about Bitcoin ETFs, with JPMorgan calling them a “gold mine.”
Meanwhile, just as the upcoming passage of a Bitcoin ETF is generating excitement, the launch of Bakkt, which will begin trading physically-backed Bitcoin Futures on December 12 pending approval from the CFTC, is anticipated to be the biggest crypto event of the year. By combining an approved custodian with a regulated exchange and an off-blockchain solution, I believe that Bakkt provides the security and scalability needed to meet investors’ needs at the institutional level.
In my opinion, all of these recent events indicate that Bitcoin is headed for mainstream adoption - likely as early as 2019. Though it’s equally important to note that none of this would be possible without all of the extensive regulatory infrastructure built up leading to 2018. There’s a popular saying “it’s always darkest before the dawn”, and even though prices are low now, I believe all of the regulatory work accomplished this year has been groundbreaking, and will ultimately help pave the way in establishing a new dawn for cryptocurrency.
