At the beginning of 2018, the term blockchain was synonymous to cryptocurrencies, particularly Bitcoin. The value of Bitcoin skyrocketed to a high of £15,000 at the end of 2017, with people jumping on the ‘get rich quick’ scheme that the world of cryptocurrencies propagated.
2018 started with an influx of new cryptocurrencies to the market – 1,500 cryptos from Bitcoin, Bitcoin Cash, Ethereum to Litecoin to name just a few – being traded on about 190 exchanges around the world. The hype of cryptocurrencies, however, soon started losing traction. Prices started fluctuating wildly, making them high-risk investments. By mid-2018, Bitcoin had shed its price by more than 50 per cent at times from its year end price in 2017.
As the value fluctuation of these digital currencies took an increasingly downward route, their usefulness as investment assets was also called into question. Financial Institutions including Goldman Sachs begun re-thinking the feasibility of introducing trading desks involving cryptocurrencies. After all, a useful currency should provide a store of value and a unit of account, both of which require balance. When traders rely on Bitcoin as their primary cryptocurrency holding, they never know if it will rise or fall overnight. They need to hold their funds somewhere while they rest, knowing that the price will be the same the next day.
As a result, a growing desire to bring stability to the cryptocurrency market echoed across all stakeholders – a demand which paved the way for the advent of ‘stablecoins.’ The stable coins that began to appear in the market were digital tokens pegged to traditional fiat currencies such as the US dollar, British pound or Japanese yen, with the aim of reducing this volatility and increasing confidence.
Stablecoins soon became known as the “holy grail of cryptocurrency.” Aiming to be a usable store of value as well as a medium of exchange, these price-stable cryptocurrencies pegged their value to another stable asset, such as fiat currencies. These stablecoins retained the benefits of cryptocurrencies including decentralisation and accountability, whilst also introducing price stability and liquidity to the equation. Many stablecoins also evolved beyond just being pegged to fiat to be pegged to physical assets – including gold and silver.
As the industry called for stability within the crypto market, a simultaneous movement for increased regulation also began. Institutional investors, governments and regulators alike began looking at the investment into cryptocurrencies with increasing scepticism, unsure about the source and legitimacy of the money being pumped into the sector. Although regulators, including the FCA and SEC, are expected to play a central part in regulation in the coming year, major players within the market are taking steps to ensure a level of self-regulation – bringing the governance and trust needed to ensure seamless integration of digital currencies in to the mainstream.
2019 is being classified as the ‘Year of the Stable coin’, as the tides of the crypto world are expected to calm with the introduction of asset-backed tokens. Regulation will also play a central role in the coming year as the industry waits for more comprehensive guidelines from central authorities. The uptake of Blockchain technology is also expected to evolve beyond the cryptocurrency space, integrated across a variety of verticals to increase transparency and accountability.
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