With crypto valuations bottoming out and exchange volumes crashing, many ‘hodlers’ secretly fear that 2019 could mark the end for crypto and Bitcoin.
A year after ‘Crypto Winter’ began and some experts are predicting it could turn into a ‘nuclear winter’.
According to Matt Hougan, global head of research at the world’s first crypto index fund Bitwise, the party is over – for now at least.
“It was a massive run up and a massive pullback,” he told Bloomberg’s Barry Ritholtz on his podcast. “It was a total bubble”.
“There are 2,000 cryptocurrencies out there; 95 percent of them are useless and will die a painful death.”
Things are definitely looking grim for the majority of the crypto market, with valuations down more than 80 percent on this time last year. Sentiment on Reddit and Bitcoin Talk forums for even many of the most popular, and respected projects, has turned negative.
And the Bitcoin price has been flatlining under $4000 since late November.
Bitcoin below three grand means ‘nuclear wipeout’
Vinny Lingham, CEO of blockchain based digital identity software company Civic, predicted recently that the crypto winter could turn ‘nuclear’ if the Bitcoin price falls much further.
“If we break below $3,000 for bitcoin, crypto winter will become crypto nuclear winter,” he Tweeted.
Lingham is doubling down on previous comments he made that suggest the crypto market will never recover until reality catches up with the hype.
“The reality is that crypto needs real adoption and use cases,” Lingham said in an interview. “Until we have that we’re not going to have another bubble. The speculative mania is over. People want real numbers and usage and transaction volumes.”
Exchange volumes plummet in January
The negative sentiment has killed trading volumes on many exchanges, which are now at levels last seen in early 2017 according to leading market research firm Diar.
Research released this week shows January 2019 was one of the worst periods in recent memory for digtial asset exchanges. Even the king of exchanges, Binance, saw its Bitcoin/US Dollar market volume reduce by more than 40 percent in January compared with trading volumes for the popular pair during December 2018.
And popular US exchange Coinbase’s BTC/USD pair volume is back where it was in mid 2017.
In November last year – not long after the UK’s oldest Bitcoin exchange, Coinfloor, had axed around 40 employees – Binance’s CEO Changpeng Zhao said that average monthly volumes on Binance were only a tenth of what they had been in late 2017 and early 2018
Taking the long term view, he pointed out that crypto market volumes were still considerably higher than ‘two or three years back’.
Diar’s figures don’t paint quite as grim a picture and suggest Binance is doing about a third of the volume it was at the beginning of 2018.
Blockchain startups failing and culling staff
The ongoing bear market has seen numerous crypto and blockchain startups close down or cut staff number. Even those startups that hit their funding hardcaps during their ICOs found it hard to survive due to the dramatic reduction in the value of the crypto they’d collected.
Ironically, those who ignored crypto ideology and swapped their funds to fiat, found it easier to survive.
In December, ETCDEV, the startup that developed Ethereum Classic announced it would close after running out of money. Blockchain based social media platform Steemit, laid off 7 of 10 employees in November, while adult entertainment token Spankchain downsized to just eight employees last month.
One of the bigger names suffering from the long ‘crypto winter’ is NEM (who run the NEM Blockchain Hub in Melbourne). The NEM Foundation is planning layoffs from its 150 person staff. Its President Alex Tinsman has revealed the foundation will submit a 160 million token funding request, worth $7.5 million to the NEM Community to stay afloat.
“Basically we realised we had a month to operate, due to the mismanagement of the previous governance council,” she said.
The amount of funds raised will determine the scale of layoffs and paycuts.
But there’s an old saying that it’s always darkest before the dawn, and among crypto true believers there’s a sense that this downturn is just another market cycle, and that the bulls will return before long.
Light at the end of the tunnel
Coindesk contacted more than 60 crypto startups in its recent ‘crypto winter survey’ and found those with the longest experience in crypto believe that all they have to do is wait it out.
Some had prepared for this: Crypto advisory firm Altonomy told clients during the boom to liquidate enough Ethereum for fiat to sustain themselves for two years. Those startups that listened are doing fine.
Some blockchain companies have already survived another crash in the bear market of 2014.
Matt Luongo, the project lead of Keep said ‘We were expecting an extended downturn as we were around for the last bear market’.
Co-founder of Boost VC, Brayton Williams, said he believed that sentiment is a lot better this time around as people have maintained their faith.
“This ‘winter’ is 100X better than the 2014/15. People don’t think crypto is going to die. They are all just trying to time for when it comes back. In 2014/15, the conversation was all about if crypto survives at all.”
In fact, Williams dosen’t even agree we’re in a ‘crypto winter’ – he says it just looks that way when compared with the Bitcoin bubble of late 2017.
“The investment money is returning back to the norm of difficult to obtain. I think the ‘winter’ is greatly exaggerated. We are just back to normal behaviors.”
Some projects, like crypto and security token firm Polymath, even think the ‘winter’ has been beneficial for ‘heads down, development focused projects’.
Josh Fraser, co-founder of Origin Protocol, agrees. “We view this as a great time to pick up talent and build great technology, much like Google and Amazon got their head start during a bear market,” he said.
From the ashes, a mighty Google or Facebook will rise
Although Bitwise’s Hougan predicts a grim future for the vast majority of altcoins, he also blieves the Bitcoin bubble has overall been a positive development for adoption and enthusiasm for blockchain.
That’s because the endless stories about the soaring price of Bitcoin in late 2017 helped lure a new generation of talent into the industry – which is exactly what happened with the dot com boom and bust of 1996 -2001.
“It did the same thing that happened with the Internet, which is it attracted a huge amount of talent. It did bring a lot of capital and interest in development to the ecosystem.”
“I think [bitcoin] is the next dotcom. Remember, the dotcom bubble created Pets.com, but it also created Amazon.”
Hougan says it’s actually an important step to purge the ‘95% of useless’ cryptocurrencies becasue “from those ‘ashes’ will emerge important things. Just like from the dotcom ashes emerged Amazon, Google, and Facebook,” he said.