January 3rd officially marked the ten-year anniversary since the genesis block on the Bitcoin blockchain. What started out as a digital currency has now paved the way for a new frontier at the crossroad of tech and commerce. In that time, the industry had seen many meaningful milestones, with positive and negative ones combined, and last year was no exception. Despite the bear trend in the crypto trading market, 2018 remained a significant year for steady development of decentralized technology. Combining this with an influx of institutional involvement and the swing of the global financial regulatory pendulum, there’s a lot to review from an eventful year.
With that in mind, here are the top blockchain trends of 2018 which we think will also set the tone for 2019.
1. Stronger Security Regulations
Security, in the sense of investor protection, is a pressing problem that constantly affects ICOs. Verification protocols like KYC and AML were not required for early ICO investors, which left room for anonymity, and companies were unable to identify their own early contributors. Although anonymity brought benefits such as a lowered participation barrier from a global investor base, this nonetheless posed a risky situation for fundraising companies as well as investors themselves.
In response, regulators took a much deeper and concerted effort on reforming legislation. One of the first steps was the US Securities and Exchange Commission (SEC), coming in to regulate the ICO market. Notably, the SEC clamped down on ICOs that were unregistered with federal regulators. They also ruled that DAO tokens should be considered securities and labelled accordingly. This sent a strong message to blockchain startups — deliver clear business plans and roadmaps that are compliant with regulations. This is the beginning of a much stronger legal foundation in the space; a trend that will ultimately increase transparency and help filter out illegitimate ICO projects. The battle remains as companies and regulators work to seek a sweet spot to balance oversight and innovation freedom.
2. Institutional Interest in Blockchain & Bitcoin
As regulations tighten and increase, institutional interest in the space is also growing despite the bear market.
According to Jeffrey Sprecher, CEO of Intercontinental Exchange (ICE) and chairman of the New York Stock Exchange, “No one has dropped out of crypto. They could have walked out but no one is walking away.” He also believes that digital assets will indeed survive. Sprecher’s statement is justified as the Intercontinental Exchange (ICE) is also partnering up with investment management firm VanEck to, “bring a regulated crypto 2.0 futures-type contract” to the crypto market. Bakkt, as they’re calling it, will offer physically delivered daily futures contracts on Bitcoin traded in BTC/USD on ICE’s electronic trading platform in Q1 of 2019.
A Bitcoin Exchange Traded Fund (ETF) may likely be approved this year, as the deadline for the SEC to make a decision is February 27, 2019. ETFs will allow would-be investors to “dip their toe” into a given market without the risk of buying the asset itself. Unlike most of its 2018 predecessors, the ETF would source its prices from the bitcoin spot market — not the Chicago Board Options Exchange (Cboe) and Chicago Mercantile Exchange (CME) futures markets. If a Bitcoin ETF finally arrives, it may enable more institutional investors to safely buy Bitcoin through a regulated medium. With these institutional foundations being built, the future of blockchain and cryptocurrencies remains bright.
3. The “Bearish” Trend
After the December 2017 Bitcoin bubble imploded, it led to a bearish 2018. While 8 billion dollars was raised from ICOs in 2018, statistics show that ICO fundraising is on a decline with only 600 million being raised in the months of September, October, and November. To understand the drop in funding, it is essential to analyze the differences between traditional IPO investing and fundraising through an ICO.
There are many differences in traditional IPO investing versus ICO investing. With IPOs, various legal compliance measures must be met, including producing a prospectus. This document is a legal declaration of the company’s intention to issue its shares to the public, and must meet certain standards of transparency. Meanwhile, ICOs are not bound by any legal requirements to issue any form of legal documentation. Thus, any project could construct the document as they see fit.
Since ICOs do not require adherence to any regulatory framework or legal protocol, a majority of them do not have a track record and only have a whitepaper of their project. While some have a working prototype, most consist of a conceptual framework manifested through the aforementioned document. This makes assessing project legitimacy and fundamentals extremely difficult. Going forward, we anticipate an increased need for due diligence, not just from exchanges, but also from regulators and advisory firms to provide more guidance for responsible investing in the space.
4. Looking Ahead: The Rise and Evolution of STO’s
Perhaps the biggest trend to dominate the year ahead will be the maturation of Security Token Offerings (STOs) as the solution to a volatile ICO space. There are a couple of significant differences between ICOs and STOs, that make the latter a more dependable choice. STOs protect all investors, especially retail ones from investing in high-risk ventures. STO issuers are usually more mature companies, and thus tokens represent assets (shares). Unlike ICOs, STOs are regulated to lower investment risks. Moreover, due to firmer procedures around STO launches, more steps will be taken to protect investor confidence.
With that in mind, Vanbex Labs will become the industry leader in Security Token Offerings through our product, Rocket 2.0. The new platform will allow enterprises to create their security tokens and launch their STO with efficiency and compliance in mind. Some of the features include Safe Fund Storage, Voting Privileges, Efficient Investor Management, Equity/Issued Security Transfer and Communication with Corporate Networks. Our goal is to provide companies an easy way to launch their STOs without the burden of programming such a complex fundraising procedure. Rocket will be fully capable of supporting and creating STOs, with full legal compliance through our partnership with Capiche.
What are your thoughts about 2018, and what are your predictions about 2019? Reach out on any of our channels and let us know how you see the future of cryptocurrency and blockchain!