Disclaimer: What follows is one author’s opinion of what will be important for the crypto markets in 2018 and the future of blockchain technology. This is not intended to construe investment, legal, or tax advice. There will be no price predictions or advice on what to buy. This is merely a set of concerns to aid in your analysis of the markets in 2018. Also, this is not meant to be an exhaustive list. Rather, it is a starting point for some of issues that may be prominent in the coming months. As always, do your own research. For those unfamiliar with cryptocurrencies and blockchain technology, you can find an intro bitcoin and crypto here and here. Future of blockchain analysis
2017 has been a wild year for the crypto world. We’ve survived wallet hacks, ICO (Initial Coin Offering) madness, market crashes, in-fighting, forks, scammers, attacks from traditional financial companies, hostile governments, and even malicious digital cats. Through all of the turmoil, the market has remained resilient. After every crash, it bounces back and soars to new highs. This volatility, coupled with growing mainstream acceptance and investor excitement towards unparalleled profits, have resulted in an unprecedented boom in the crypto markets.
It is easy to get caught up in the hype that naturally follows an overall market growth of over 3,300% in less than one year, with some individual coins far exceeding that. However, it is important to take a step back from the markets periodically and take a look at the past, as well as the future of the industry.
Three important concepts to consider in 2018 are: Adoption; Regulation; and Perspective.
The launch of Bitcoin CME and Cboe futures, along with the accompanying media attention, has helped to usher in a whole new crop of crypto investors. While these new investors are essential for continued mainstream acceptance, some of them are less than informed about blockchain technology and the underlying aspects of the protocols they are betting on. This results in the true value proposition of blockchain technology becoming obfuscated by the excitement of potential wealth and unimaginable profits.
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As 2018 approaches, it is important to remind the new folks, as well as the old, that we are speculating on the probability of these technologies becoming widespread and heavily implemented. Whether you are investing in privacy coins, smart contract platforms, value exchange systems, or any of the other myriad projects currently being developed, you are betting on the adoption of that project. The best projects in the world are meaningless if nobody uses them.
Though usability is an ongoing concern (among others), the most pressing technological issue that stands in the way of mainstream adoption is scalability. Blockchain technology works. We have a “proof of concept” for the industry. However, the security and immutability of blockchains create some inherent inefficiencies when attempting to scale them for mainstream adoption. Two of the most important solutions proposed are the Lightning Network for Bitcoin and the Raiden Network for Ethereum. Both of these projects, if implemented well, could aid in the ultimate goal of increasing throughput to and beyond the levels of current payment processors (Amex, Visa, etc). Both have promised implementation in 2018. Also, there are other non-blockchain distributed ledger projects, such as IOTA and Hashgraph that attempt to solve the scalability problem of blockchains.
By all means, make money on the speculation. But always remember that the true, driving factor of sustainable price growth is universal adoption. It is important to constantly check the news and follow projects you believe in on social media. In 2018, the implementation and follow through of promises (particularly relating to scalability) made in 2017 will be critical to firmly legitimizing the crypto industry’s place in the world markets and proving the naysayers wrong, once and for all.
Like it or not, Uncle Sam is here to stay. 2018 will undoubtedly add a level of government oversight and policing that has not previously been seen in this space. From the IRS’s court victory against Coinbase concerning tax records, to the creation of the SEC’s Cyber Unit and first enforcement action against an ICO organizer, it is obvious that the days of blissful ignorance regarding securities laws and tax liability are coming to an abrupt halt.
Though the increased government oversight may leave our wallets a little lighter around April, this is a necessary step towards mass adoption. Despite early adopters actively opposing any sort of government involvement, with many initially participating in the crypto movement to give a concerted middle finger to traditional governmental and financial systems, most mainstream and institutional investors do not share that sentiment. They are unwilling to purchase an asset if there is a chance that the legality of the very asset class itself may be suddenly challenged or changed, causing the value to tank overnight. A parallel can be seen in the marijuana business, which struggled (and still struggles) to obtain institutional backing. Remember, mass adoption is key to long term price growth and sustainability, with regulation being a necessary evil to attain that end.
The point of this, whether you agree with the possible benefit of partially attaining legitimacy through regulation or not, is that participants in the crypto markets can no longer (easily) hide and decline to report the fiat profits from their investments. The sovereign citizen argument will not save you from the all-seeing eye of the IRS. In fact, the IRS has already hired a company called Chainalysis to track Bitcoin transactions in an effort to foil would-be tax evaders. Currently, the IRS has classified crypto gains as personal property, subject to long and short-term capital gains taxes. Make sure you consult a crypto knowledgeable CPA and report your gains properly.
Also, keep an eye on the evolving securities laws surrounding crypto, particularly Initial Coin Offerings (ICOs). There has been no overall decision yet by the SEC pertaining specifically to the classification of ICOs, though they have written a detailed report concluding that the DAO token sale did qualify as a security. For background on what the DAO was, the ensuing hack, and the SEC decision, click here. Before making the decision to participate in any ICOs make sure you speak with a lawyer and carefully consider any risk you may be assuming. Becoming independently familiar with the Howey Test and the family of related Securities Acts is a great idea for anyone looking to become a more responsible and informed investor.
The market skyrockets 200% in a month. Everyone is elated. People are planning their early retirement and picking out their Lambos. Everyone is saying that the market can never crash and gravity doesn’t exist! Suddenly, the bottom seems to fall out of the market. Bitcoin is down 20%. Alts are down 30%. Everyone’s portfolio is red. People are calling it the end of crypto. There is much weeping and gnashing of teeth. Bitcoin is dead for the 218th time.
This is a situation that happens every few months, without fail. When this happens, it is crucial to take a step back and breathe. Go hang out with your friends and grab a beer. Zoom the chart out and look at the year-to-date, or at least the last few months. You’ll realize that the current correction is merely a blip on the radar in an otherwise upward trajectory. It’s easy to drive yourself crazy and make emotional decisions if you stare at 30-minute candles for 18 hours a day. Don’t be a weak hand that panic sells, only to buy back higher once the correction is over. Remember, buy low and sell high, not the other way around.
Also, though we all know this, it bears repeating that the crypto market has spoiled us. The gains that even bad investors get in the crypto market are better than anything that investors in most traditional markets could ever dream about. Before you get upset about a correction in the market, remember that you are probably still doing much better than if you had put your money in a traditional market.
That being said, it is doubtful that 2018 will be as explosive as 2017. There will be fewer stories of 6,500% percent gains. However, there will be extraordinary amounts of money to be made and hopefully, you all take advantage of it! It will be important to keep everything in perspective, from gains to losses and everything in between. We are poised on the edge of a blockchain revolution in many industries. Be smart, stay calm, and make some money.
If you’ve made it this far, I applaud your resilience. Before I finally let you go, here are a few other good pieces of advice to remember in 2018:
- It’s only a loss once you sell. But don’t be afraid to exit unprofitable positions.
- If you believe in a project, just buy and hold. Very few people make money trading. Don’t try to be a hero.
- There’s no shame in taking profit.
- What goes up must come down. And what goes down generally comes back up.
- Things are never as good as people say they are, and they’re never as bad as people say they are.
- Do your own research and come to your own conclusions. Relying too heavily on others will burn you and you won’t understand your own investment.
- Don’t trust anyone else with your money.
- There is no substitute for good research and understanding of your investment. Fundamental analysis is crucial.
- Never trade or invest on emotion. As a rule of thumb, don’t buy the all-time high. What goes up will almost always come back down.
- Only invest what you can afford to lose.
- Only invest what you can afford to lose.
- ONLY INVEST WHAT YOU CAN AFFORD TO LOSE.
[clickToTweet tweet=”Only invest what you can afford to lose. #bitcoin ” quote=”Only invest what you can afford to lose.”]
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Remember, this is just my opinion and should not be construed as investment, legal or tax advice. Happy investing!
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