What happened to bitcoin in 2018?

It seems all too appropriate for Facebook's plans to launch a digital currency to be leaked in the penultimate week of a year that has seen the reputation of the tech giant hit by collapse and encryption. It's like grilling a shit sandwich over a dumpster fire.

Bitcoin – and the cryptocurrency industry as a whole – has plummeted this year, following a surge that challenged gravity in recent years. The price of the digital currency touched almost $ 20,000 at the end of last year. And then at the start of 2018, it began to fall. Even if it hit some plateaus, the price has still collapsed; today it hovers just over $ 3000.

So, what happened? And is there any hope for a recovery? To answer both, you need to consider some factors.

The bubble

When the bitcoin was growing last year, it seemed like a trend that everyone, from your grandmother to your bartender, was suddenly becoming fashionable. Of course, many people have warned that it could be a bubble, but it's always difficult to do something like that when you're in the middle. It's free money, right? Why not enter it? (Just do not remortgage your home!)

All the signs, however, were there. Like the previous bubbles, people believed in cryptocurrency about their emotions, not in an intrinsic value. Then there was the FOMO element, which only aggravated things. Essentially, bitcoin has become an international fever. Random societies were "spinning around the blockchain" for no apparent reason, other than the fact that it seemed like a way to create buzz. But when the bubble breaks out, FOMO turns into fear of losing, which makes diving particularly fast.

Among those who called him, the hedge fund manager Mark Dow wrote almost exactly a year ago about his decision to cede bitcoin after future trading on it began:

But this time it seems different. It looks like a bubble. The fever in the post-Thanksgiving moon was warmer than we had seen before. We have also started to see a strong response to the offer.

The bubbles are complex dynamics. What everyone has in common, however, is that they require emotions to become truly parabolic. Also, the less we understand the object of the bubble, the greater the chances of greed and FOMO to fill in the blanks.

Dow, at the time, simply could not find a good reason for the crazy performance of the crypt. The only logical explanation: it's a bubble. His opinions were particularly prescient. He said Bloomberg this month he made a profit twice thanks to this astute call.

Other warning signs

But to understand the dynamics that led to the depressing year of this year for cryptography, we should actually start a few years before 2018. In the early days of Bitcoin, Mt. Gox was the reference service for managing transactions. Then, in 2014, he stopped the transactions and slowly switched to a cryptococcus totaling $ 473 million, the biggest hack of its kind at that time, and he gave many people a break. But it was still early enough to make people believe that the blockchain system was still solving all the technical problems.

But the hacks did not stop. In 2016, the DAO, an ethium-based blockchain organization, lost what was worth $ 50 million at the time, due to a technical error that someone caught. This, again, has generated waves of shock through the community, but has also had the unfavorable impact of normalizing these types of hacks for some people.

At the end of 2017 and at the beginning of 2018, more and more people, especially those from the traditional financial world, were paying attention to the bitcoin and cryptocurrency trade. And at the beginning of January 2018, Coincheck's Japanese exchange revealed a hack worth $ 534 million. This happened just as the bitcoin slipped from its peak value, and certainly seemed to accelerate its fall.

According to Stephen Innes, the head of Asian trading for the Oanda foreign currency, the hacks were the first element to have a chilling effect on the crypto. Feeling the amount of money thieves have been able to take, he says, "Consumers are very concerned that their money may disappear."

In the wake of both Coincheck attacks – as well as the big one that hit the governments of South Korea, the governments of Coinrail in East Asia began to repress. Within a few months, China, Japan and South Korea have announced several measures to better regulate encryption. The world was watching to see if this new technology would hit the mainstream – and the repressions of the government following gigantic hacks have helped to poison public perception.

In fact, after the peak of nearly $ 20,000, the bitcoins at the start of 2018 fell to around $ 10,000 and hovered there for a while.

Lack of institutional support

Besides the blockade of some governments, what bitcoins really needed to achieve lasting success was general acceptance. While some financial institutions have announced plans to explore solutions based on blockchain, many others have hesitated.

JPMorgan's CEO, Jamie Dimon, for example, made more comments during the year expressing his general dislike of cryptocurrency. Dimon's thoughts could easily be summed up with this phrase: "I do not give a fuck bitcoin." Warren Buffett also had no kind words – calling him "probably square rat poison" – which almost certainly sent a clear message to curious investors.

When some of the most respected people on Wall Street make such comments, "it takes a huge element of mainstream out of the market," says Innes. Basically, these strong hitters were telling their henchmen that bitcoins were not worth their time.

In the meantime, there has been much speculation that the big increase in bitcoin could be due to a pump-and-dump scheme. One theory that the US Department of Justice is examining is that the Tether digital currency (which is supposedly anchored to the US dollar to create a less volatile cryptocurrency) was used to manipulate the bitcoin market and cause a large increase in price. This theory derives from an academic document, which launched Tether in a very overwhelming light. And it has also led many to believe that the initial bitcoin craze has been fabricated and destined to fail.

Another institutional blow for bitcoin – which probably had the most lasting effect – was the refusal of the SEC to approve a fund traded in bitcoin exchange (ETF). This would be a path for the most important people in finance to dabble with the blockchain; would allow investors to dip their toes in bitcoins without possessing the real good. Not only that, but it would make the bitcoins available on the most important financial markets. The Securities and Exchange Commission (SEC) of the United States, however, must still allow the existence of such a fund, mainly because it is not able to monitor the encryption to avoid market manipulation.

The inability to obtain SEC approval has generally curbed bitcoins and cryptocurrencies. He sent the message, Innes says, "that there was no underlying support from Wall Street." Meanwhile, the price has dropped from around $ 10,000 to $ 6,000.

Internal battles

But it was not only outside the pessimism that led to the crisis, but also to internal struggles. Blockchains are decentralized and democratic systems require buy-in from participants to keep the engines running. When there is a schism that can not be decided by the majority, it unleashes hell.

In 2016, this became evident with the DAO hack. One way to solve the problem was to implement what is known as "hard fork", which would essentially update the Ethereum-based software to correct the technical gaffe that had caused hacking. But DAO users had to accept this change and they were dissidents. Although the fork has been approved, it has created two active blockchains with two different sets of rules. In the end, this coupled with the inability to deal with it caused the end of the DAO in 2016.

This year we saw a similar fight break out-this time in bitcoin cash. This coin, mind you, is not bitcoin, although it is built on the same architecture. It was created by a group of miners who disagreed with some of the foundations of the initial bitcoin system, and so they forked a new blockchain and went their own way. In terms of market capitalization, bitcoin money has always been one of the best cryptocurrencies – in the Ethereum and XRP files.

Last fall, the bitcoin monetary community, created due to a technical disagreement with the wider bitcoin sector, started a civil war. Essentially, cash bitcoin developers had divergent views on software updates for the system, and so they decided to implement another hard fork. This created two new seven bitcoin cash. Internally, the fork caused many conflicts; one of the most popular bitcoin alternatives was not able to reach a consensus and instead had to create two different paths that would essentially have entered the war one with the other.

When the difficult fork arrived, and the participants had to choose which route to take, the entire cryptocurrency market collapsed. It is very likely that this has caused the bitcoin to drop from $ 6,000 to about $ 3,000- $ 4,000. Which brings us to today, with the cryptocurrency that hit the bottom in less than 80% of what was a year ago.

Is there any hope?

We are definitely in a very different place than 12 months ago. What was a hot product turned into a hot potato that nobody wants to touch. However, this will almost certainly not be the end for bitcoin, or cryptocurrency as a whole. Although he realized that it was a bubble, even the toughest critics see a kind of future.

Dow, the man who first shorted bitcoins, for example, even mentioned in his initial post that a person can be "at the same time bullish on blockchain and bearish on bitcoin". And he alone announced who is finishing his short.

Meanwhile, even the most enthusiastic bitcoin evangelists are realizing that retooling is needed. Michael J. Casey, senior consultant for blockchain research at MIT's Digital Currency Initiative, recently wrote about how the crypto-winter arrived, but could lead to better things across the board:

The good news is that the glare of public opinion will eventually dissolve, and as the spotlight diminishes, the real developers will find themselves in a healthier environment within which to do the work necessary to unlock the potential of this technology. We saw a similar period of constructive construction during the 2014-2016 break.

But whatever the new products are, now they will have more difficulty fighting with acceptance. Whether we like it or not, the message and image are important.

This seems to be the general message of most. Even Innes, who has been critical of bitcoin and crypto-trading for some time, admits that this does not mean that the blockchain is a maypole. In fact, he sees things looking up. "If this base can hold", he says, "[the price will] Let's start drifting. "But not because of the fervor or blind confidence that bitcoin is the future, but because of technological advances.

"This is a legitimate technology – it will expand," he says, "my long-term vision is not far from where some [my current] the views are. "He could also hit $ 10,000 again, he says, but it will probably take a few years, so let's wait and see.