Monthly Crypto Commentary — January 2019

This month we were reminded that the crypto ecosystem is still at a very early stage of development, something that everyday crypto users often tend to forget.

Quick Summary

  • January was plagued by several larger negative developments in the crypto ecosystem.

  • They serve as a reminder that the crypto ecosystem is still at a very early stage of development.

  • Institutional investors are increasingly supporting the growth of the ecosystem.

Market Overview

January started on a positive note, extending the gains from the second part of December — in the first nine days of 2019, the market appreciated by additional 9%. Yet thereafter, we witnessed another sharp drop in prices, with the market losing 15% of its value in the next four days. This was followed by a short bounce after which the market continued with its downtrend. January thus ended up with a total negative performance of -10.5%.

Solidum 20 Market Cap Weight Index | January 2019
CoinMarketCap, own calculations

There were several negative developments throughout the month which added to the gloomy sentiment:

  • Ethereum Classic (ETC) 51% attack.

  • Ethereum (ETH) upgrade delay.

  • Bakkt launch delay.

Early Stage Technology

On 5 January, the Ethereum Classic (ETC) blockchain, a hard fork of Ethereum (ETH), experienced a 51% attack which resulted in $1.1 million double spends. Several exchanges immediately disabled ETC deposits and withdrawals to protect the funds of their customers. The incident showcased the limitations of the Proof-of-Work consensus algorithm. Contemporary blockchain projects utilize more sophisticated algorithms and many legacy blockchain projects also plan to upgrade their consensus algorithms.

The second unfavorable event happened on 15 January, as the Ethereum (ETH) developers delayed a highly anticipated upgrade, named Constantinople, for the second time. The reason for the delay were security vulnerabilities found in the code and the upgrade has been postponed until the end of February. The Constantinople upgrade also represents a step in the direction of switching from the Proof-of-Work to the Proof-of-Stake consensus algorithm.

Such events reveal the fact and blatantly remind us that the crypto ecosystem is still situated at a very early development stage, something that everyday crypto users often tend to forget.

Bakkt Launch Delay

The third major negative event of the past month was the delay of Bakkt launch. Due to the United States government shutdown, the financial regulators’ actions were halted and Bakkt’s application was postponed. Meanwhile, the government shutdown has — at least temporarily — resolved, yet it remains unclear when the application would finally be approved.

Bakkt launch is widely perceived to become one of the major crypto events of 2019 which can significantly expand the crypto adoption. Their mission is to build the first integrated, institutional-grade, exchange-traded markets and custody for physical delivery of cryptocurrencies.

Investments in the Crypto System

One of the main reasons, which makes us believe that crypto will become an integral part of our society, is the continuous inflow of institutional money into the ecosystem. They say a picture is worth a thousand words and chart 2 displays the venture capital funding of crypto companies in the last five years.

Venture capital investments in the crypto ecosystem | In million USD

In 2018, the venture capital funds invested over $3.1 billion into the crypto ecosystem, which represents a 257% increase compared to 2017. Almost a billion was invested in the third quarter alone, which was the strongest fundraising quarter to date. This demonstrates that institutional investors remain confident in the successful long-term development of the crypto ecosystem despite the current adverse market environment.

Solidum Capital also manages the Solidum Prime digital portfolio on the ICONOMI platform. You’re also welcome to read our Solidum Prime Monthly Report for January 2019.

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DISCLAIMER: This article is for informational and discussion purposes only and does not constitute a marketing message, an investment survey, an investment recommendation, or investment advice. The article was prepared exclusively for a better understanding of market dynamics.

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