Fred Wilson sees the cryptocurrency bear market ending this year. The Union Square Ventures co-founder laid out his thesis in his annual year-ahead post, arguing that 2019 will mark the transition fro
Fred Wilson sees the cryptocurrency bear market ending this year. The Union Square Ventures co-founder laid out his thesis in his annual year-ahead post, arguing that 2019 will mark the transition from the brutal downturn that defined 2018 into a new period of growth driven by shipping long-promised products.
The numbers tell why investors needed a reset. Cryptocurrencies lost 80 percent of their value between January and September 2018, erasing fortunes and confidence in a sector that had felt unstoppable just months before. Wilson thinks that selling is nearing its end, though the process could stretch through much of 2019.
"I think we are in the process of finding the bottom on the large, liquid, and lasting crypto-tokens. But I think that process could take much of 2019 to play out," Wilson wrote. "I expect we will see some bullish runs, followed by selling pressures taking us back to retest the lows. I think this bottoming out process will end sometime in 2019 and we will slowly enter a new bullish phase in crypto."
Wilson doesn't expect speculation to fuel the recovery. He points instead to concrete developments his firm has backed. Protocol Labs plans to launch Filecoin in 2019, and Algorand expects to release its main solution the same year. Multiple teams are building smart contract platforms to compete with Ethereum, he said, while Ethereum's developers plan to ship major updates.
"I think we will see a number of 'next gen' smart contract platforms ship and challenge Ethereum for leadership in this super important area of the crypto sector," Wilson said. "I also expect the Ethereum open source community to ship a number of important improvements to its system in 2019 and defend their leadership in the smart contract space."
Beyond smart contracts, Wilson sees momentum in three other areas: stablecoins designed to reduce the wild price swings that plague cryptocurrencies, digital collectibles and games, and financial services targeting emerging markets where traditional banking is weak.
Teams building stablecoins brought their projects to prominence last year as the industry raced to solve crypto's volatility problem. A Bloomberg report from December described Facebook developing a stablecoin for WhatsApp. The project would target money transfer, focusing on remittances to India, according to people with knowledge of the effort.
Mati Greenspan, who analyzes markets for eToro, shares Wilson's outlook. He expects 2019 will be the year institutions embrace tokenization. Companies will turn stocks, bonds, commodities, and other assets into digital tokens that move across blockchains.
"As we move into 2019, we're likely to see many more types of financial assets being tokenized," Greenspan said. "Most likely starting with stocks and ETFs, but just about anything that has a value can essentially be represented as a digital token on a blockchain, making it easier to transfer ownership directly from person to person instantly across the Internet."
Banks and investment firms began exploring crypto last year through statements and pilots. Greenspan expects them to move into action in 2019, launching trading desks, custody solutions, and new investment products.
"In 2019, the priorities for financial heavyweights include exchanges, ETFs and cryptoasset custody, more futures markets, and additional crypto related trading vehicles. As they enter the market, institutions will bring with them clients who want to access cryptoassets on their own terms, through a medium they are familiar with," Greenspan said.
Wilson warns that regulators will remain a force. Officials lacking crypto expertise will target legitimate projects and hold back their growth.
The space will attract scams, hacks, and abandoned projects this year. That is the cost of building without gatekeepers. Teams embracing permissionless innovation gain long-term value, and they accept the downside: bad actors operating freely in the same space.
