As predicted! .....Aivars Lode
Bitcoin is in the longest slump of its 10-year history. That is forcing even its most ardent supporters to shelve dreams of global disruption and focus on simply tightening their belts long enough to outlast the downturn.
Signs of the crypto winter are everywhere, marking a sharp reversal since the manic highs of 2017. The price of bitcoin Tuesday was just below $4,000, down about 80% from a trading peak of about $19,800 in December 2017. The total market value of all cryptocurrencies outstanding is down 85% from its peak in January 2018. And volumes on the largest U.S. exchanges have been falling steadily for the past 15 months, according to research firm TradeBlock.
Bitcoin is still driven largely by momentum, and right now it doesn’t have it. Cryptocurrencies have struggled to attract mainstream institutional investors. Regulation is still unclear, which has scared off some potential users. Companies that have sprung up around the crypto world are under pressure until the next upswing, and crypto fans aren’t sure where that will come from or when.
While bitcoin is trading well above its December 2016 level, the severity of the recent drop is raising concerns that it may never recover. The market’s long-term viability now hinges on the development of tangible uses for bitcoin and its underlying blockchain technology.'
To be fair, crypto markets have long been defined by choppiness. During part of 2011, the price of bitcoin dropped about 95%. The price also dropped 85% from December 2013 to January 2015, sparked by the shutdown of the Silk Road website, an online drug bazaar that used bitcoin, and problems at the teetering Mt. Gox trading exchange.
But the sector is much bigger than it was during some of those earlier swings, and it is closer than ever to becoming mainstream. Its influence today is widespread: Western governments have given it tacit or explicit acceptance and venture capitalists support it. Developers are finding ways to apply its underlying technology, blockchain, to fields as varied as supply-chain management and capital-markets trading.
The sharp decline in price over the past year has led to cost-cutting at some firms. “There’s still coffee,” said Eric Larchevêque, CEO of Paris-based Ledger SAS, which makes crypto-storage products that resemble thumb drives, “but you don’t have the extra nuts.” The company has also cut back on travel and advertising, he said, though it has avoided layoffs.
“We’re trying to deal with it on a day-by-day basis,” said Mr. Larchevêque, whose firm raised $75 million in January 2018. That plus product sales have been enough to sustain the company, he said, but it is contingent on more austere management. “We want to make sure the company will still be here in 18 months.”
Firms that raised capital and made money during the boom are taking advantage of the slump, scooping up smaller companies. Circle Internet Financial, which operates a wallet service for storing cryptocurrency and a trading desk, among other things, has raised a total of $246 million from investors including Goldman Sachs Group Inc. The Boston-based company last year acquired cryptocurrency exchange Poloniex, and earlier this month it closed an acquisition for a crowdfunding platform called SeedInvest.
Some companies that raised big sums in initial coin offerings also are holding up. Block.One raised an estimated $4 billion in its ICO and has been using the proceeds to support its EOS platform. Telegram, which operates the popular messaging service, raised $1.7 billion last year and has been using the funds to support the service and to build its own blockchain platform.
Investors in these and other offerings haven’t been so fortunate. EOS tokens currently trade at around $3.77 after peaking at $21 in April 2018. Tezos, which raised more than $200 million in 2017, saw the value of its tokens rise as high as $11.21 in December 2017. They’re now trading at around 55 cents. Telegram’s tokens have not yet started trading.
ICOs, which brought in $12 billion in 2018, have raised only $100 million so far this year, according to research firm TokenData. Of the 50 ICOs tracked by TokenData this year, only 13 stayed in business, a 74% failure rate, the firm said. In 2018, the failure rate was 55%, it added.
“People are looking for ways to support themselves through winter,” said Galen Moore. The Boston resident recently started an open-source data-analytics project called Canary Data that he hopes to turn into a new startup, but he has also taken consulting work to pay the bills.
Dan Held, director of business development at a startup called InterChange, said that as vicious as this bitcoin bear market has been, it isn’t the worst. After the Silk Road and Mt. Gox debacles, “we weren’t sure if demand would ever come back,” Mr. Held said.
One thing Mr. Held noticed during those other bleak periods: Firms that survived were the ones closest to employing trading fees, like exchanges, which collect fees regardless of whether the market is rising or falling.
InterChange focuses on back-office accounting software for trading desks, exchanges and hedge funds. “No matter what the market is doing, you still have to do your accounting,” he said.
Revenue for bitcoin miners, who get paid in newly created bitcoin in exchange for processing transactions, has also fallen over the past 15 months, according to research firm Diar.
Boaz Bechar started a data-research site called Blocktrail in 2014 and sold it to the big mining company Bitmain in 2016. Bitmain recently laid him off as part of a broader downsizing.
Mr. Bechar believes that only the biggest crypto companies will be able to weather the volatile industry. “The big players are going to get bigger doing what they do,” he said. “It will be a race to the top.”
By Paul Vigna - Wall Street Journal
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