No financial product has had such a dream run as Bitcoin, the marvel digital currency that has taken the financial world by storm. Bitcoin had a dream run in 2017. However, 2018 turned out to be an anaemic year for the avant-garde currency. Bitcoin’s market cap fell below $100 billion in November 2018, and its price, which peaked to 19,118.30 on 19 December 2017, is resting at a low of $3260.46 on CoinMarketCap.com as of 16 December 2018 and is still struggling to find the floor. Bitcoin shows no signs of living up to the wild claims of Bitcoin bulls such as Tom Lee that the digital currency will recover to $15,000 by December end 2018. Fast-forward to today, for 2019 Bitcoin savants are gung-ho on the currency regaining and surpassing the supremacy it achieved in 2017.
A secure exchange is important for mainstreaming of Bitcoins in 2019
Regulatory concerns and security issues were cited as the main reasons for Bitcoin’s poor performance in 2018. Security firm CipherTrace reported in July 2018 that $731 million’s worth of cryptocurrencies were stolen from crypto exchanges in the first half of 2018. These security breaches and heists led to heightened concerns among crypto investors on the security standards implemented by crypto trading exchanges. Hacks from South Korea and Japan dominated headlines through the year. South Korean exchange Coinrail warned its users that it was reviewing its system owing to a hacking attempt. Japan reported one of the highest hacks of $500 million on Coincheck. In September 2018, Japan’s Zaif exchange reported a hack of $50 million. BestBitcoinExchange cites a report of the South Korean National Police Agency, which gives an account of hacks of 158 wallets and seven exchanges and flags off security as a major factor for Bitcoin exchanges going forward.
A tightening regulatory landscape in 2019
Optimism no doubt dominates sentiment for Bitcoin in 2019. Such optimism stems from initiatives taken by the various regulatory authorities to address regulatory concerns and improve security. The regulatory landscape, according to many, is becoming more supportive for cryptocurrencies, especially in the US. Stricter regulations and consistent monitoring in South Korea and Japan are expected to mitigate the magnitude of security breaches. In South Korea, the major geography responsible for Bitcoin’s plight in 2018, regulatory standards pertaining to cryptocurrencies have been tightened. The Government of South Korea has undertaken to regulate cryptocurrency exchanges as banks. This provides the local financial agencies authority to monitor and oversee crypto exchanges. In yet another major regulatory development, in October 2018, The Financial Action Taskforce (FATF), a Paris-based regulatory watchdog comprising 37 countries, announced that it will announce new rules that will call for countries to license and regulate cryptocurrency exchanges as well as companies that provide encrypted wallets. Further, FATF will conduct regular reviews to ensure that the countries are implementing the new regulations. The launch of Japanese Cryptocurrency Exchange Association, a self-regulated body, is one more step that indicates the direction in which regulatory bodies are progressing.
The unprecedented growth of cryptocurrencies has attracted the traditional financial industry’s biggest institutions into this space. Cryptocurrency exchanges have been perceived as risky, given an unregulated landscape and a plethora of hacks across exchanges. The entry of traditional financial players will increase the spate of introduction of regulated financial products in the cryptocurrency market. Bitcoin futures offered by Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) are a case in point. The entry of these major players will enable institutional investors, who hitherto shied away from cryptocurrencies, to take hedging positions for and against prices of Bitcoin. The participation of large trading and mining firms will help retail investors to profit from the volatility through Bitcoin futures. These regulatory initiatives will have far-reaching implications for the mainstreaming of Bitcoin since they address a major concern that was a hurdle in the runaway success of the cryptocurrency.