It was one year ago that Bitcoin reached an intraday peak of almost $20,000. Since then, it’s been all downhill. The market value of all cryptocurrency assets have fallen to about $100 billion from about $800 billion at the start of the year. That looks bad, but if you look at the market’s fundamentals, 2018 gets a B+ grade.
To put the price decline in perspective, figures show Bitcoin prices in 2017 and 2018, and prices from Bitcoin’s 2011 and 2013 peaks, all scaled to the same peak price and time. Bitcoin’s 2017 price rise was smaller and steadier than earlier run-ups. The decline fell between the rapid 2011 event and the slower 2013 one.
What happened afterward? In the 2011 event, Bitcoin bottomed within a year and was on its way up in less than two years. The 2013 event didn’t turn around for almost two years, and took four years to set a new peak.
Or, compare the 2018 crypto crash to the Dow Jones US Financials Index in 2007. The 2000 boom-and-bust of the Nasdaq Composite Index was slower and took 15 years to recover. Cryptocurrencies might stay low for a very long time, or go to zero and stay there forever, but recoveries from crashes are common.
People tend to overlook what happens after a crash. The South Sea bubble in 1720 London saw shares go from 100 pounds sterling to 1,000 and back, and yet the company thrived for 133 years afterwards.
In the cryptocurrency business, 2018 saw verified individual users double from 17 million to 35 million, almost exactly matching the numbers of internet users in 1995 and 1996. People working in crypto increased even faster, or 2.6 times.
Most prominent crypto projects are running near or ahead of schedule. While there have been some
setbacks, successes in stablecoins, decentralised exchanges and second-layer networks exceeded expectations. The crypto businesses that have disappeared fall into three categories. First, a lot of money was given to fraudsters and delusional optimists at the height of the boom for businesses that never really existed. Second, a number of sound technical ideas guessed wrong about the regulatory or technical winds. Those shut down gracefully and returned money to their investors. The third group consisted of businesses that raised enough cash to get to launch stage, but invested that cash in crypto and ran out of funds as a result.
We might see the economic benefits flow to big technology companies, or startups, or developers, or users rather than to buyers of crypto assets. But whatever happens, the real code base and real users is a better guide than the price gyrations, and that 2018 will go down in crypto history as a moderately positive year.
—Bloomberg