Summer wrap-up: major developments in the crypto

Before diving into summer let’s take a leap in time and see the ‘baggage’ crypto packed during the first five months. According to data by Techemy Academy, the first quarter was quite eventful: there were eighty major investments, ten token sales and seventy equity investments in the value of about $575M in total. Market capitalization in Q1 definitely brought a positive outcome on Q2 in terms of growth for the trading and investment sector. In Q2 there were fewer deals, however, more capital raised through token and equity, totaling in almost $2B.  

In general terms, crypto approached summer full of optimism with a steady increase in bitcoin prices. This was evidence of big players entering the market. It’s important to acknowledge that there is not a substantial qualitative change in terms of improving market regulation. However, at the same time, there is a significant quantitative shift, as the number of regulated market participants has increased.

General overview: ecosystem grew bigger

The summer of 2019 was marked by a number of major news events in crypto space. Cash App, that is supported by Square (financial software that focuses on bitcoin transactions), doubled its revenue in the amount of $125 million in Bitcoin itself. At the same time, Walmart suggested bringing its own digital currency patents similar to Facebook Libra for secure storage of government bonds.

The tech giant Facebook announced its Libra whitepaper that brought attention from all different aspects and such a financial institution as JP Morgan with its JPM Coin. At the same time Google, Amazon, and Samsung would start breaking into crypto space with their own blockchain platforms and innovative ideas around bitcoin supporting services.

Crypto activity substantially transferred to the countries of the Middle East and Asia in 2019. Despite the fact that the Americas are still considered to be the leaders,  driving investments have been actively made in APAC and EMEA countries with five out of ten M&A and fundraising deals.

According to the PwC report, the crypto fundraising ticket sizes themselves have increased from $6 million to $9 million, making  a 50% increase in just one year. Data shows that crypto fundraising is strongly correlated to the bitcoin price, which makes the market more sustainable for industry actors to act on with full confidence. In this way, the crypto space urged many global players to rejoin the market, resulting in a 51% rise in capital from Q1 to Q2 in 2019. The surge of activity has welcomed a number of high profile players with their own macro events and announcements.

Grand Theft Crypto: massive haul

With the beginning of summer, the activity of hackers and fraudsters increased markedly:

• On the first day of June, GateHub, fell victim to a data breach, losing over 23M XRP. Allegedly, API was used to commit the crime.
• June 2 — the Kraken Bitcoin Flash Crash happened. At first, everyone suspected trading error and a technical glitch to be the cause of a massive vertical drop. However, later on, it appeared that a sophisticated hack was to blame.
• June 18 — CFTC took legal actions against Control-Finance Limited for misappropriation of bitcoin worth about $147M. The investigation discovered a fully-fledged Ponzi scheme — High Yield Investment Program via affiliates.
• June 21 — two brothers from Israel are arrested for ‘typosquatting’ that lasted for three years. The huge resonance was evoked by the suspicion that these two were responsible for the Bitfinex fraud case.
• June 24 — a group of six people arrested for a massive hack that affected at least 12 countries in which  fraudsters stole $27M. The group operated from the UK and Europe.
• July 8 — the polish exchange Bitmarket ceased its operations due to liquidity problems. The closure was worth $23M. The story acquired grim development: two weeks later the co-founder of the exchange was found dead in the forest.
• July 12 — the Japanese exchange BITPoint is hacked losing $23M of customer's money. Interestingly enough, a month earlier an inspection was held and found that customer protection was insufficient.

As you can see, the first two summer months were quite hot and eventful. In parallel, while criminals were doing their business, the regulatory landscape was transforming from here to there — unevenly, as usual.

Regulation

Countries around the world have put initial efforts into regulatory adjustments in crypto space: G20 claiming of its alignment to the standards of AML and support of FATF’s crypto guidelines, Japan’s passing new crypto regulation in National Diet, Brazil’s establishment of the 34 member commission for blockchain, fintech, and crypto. All these activities went hand in hand with the maturation of the market.

The realization of the predicament posed in the industry regarding the fundamental question of user interaction throughout transactions. The Financial Action Task Force (FATF) started implementing the “Travel Rule,” changing the management of transactions done with crypto, where it would require cryptographically controlled methods of the secure sharing of information.

With the trending halving of litecoin (LTC), South Korea started its “free zone regulation” to the blockchain development in Busan, hoping to achieve an investment of about $25 million by 2021. Moreover, one of the largest exchanges, Kraken, attained Interchange, helping users to manage their portfolios in a much more efficient way.

China has been under regulatory suppression — exchanges and ICOs fell under restrictions in the past. This summer, the Chinese government presented a proposal in terms of crypto mining. Over 450 types of activities may be subject to restriction in such cases where they do not comply with present-day laws and regulations. At the same time, on July 19, bitcoin was finally recognized as digital property. Basically, China is very much against exchange and trade but is rather OK with ownership. Going forward, today the Chinese government is considering the launch of its own digital currency backed by the yuan. So, grab some popcorn: things are getting interesting.

The UK authorities (FCA) offered to ban all derivatives as ill-suited products because of their volatility, insufficient market expertise, and huge risks. France created a task force (G7) in order to assess the compliance of crypto companies with the banking regulatory framework. Specifically, G7 must focus on customer security and AML.

So, that’s a wrap. There’s been a lot happening in the crypto environment both positive and negative. Still, the industry is far from being ambiguous. The introduction of new regulations face a lot of criticism, simply because the industry is not technically prepared to comply, sufficient infrastructure does not exist. We are on the cusp of Q4, and it is my firm belief (a belief Kyrrex team shares) that there are reasons to be optimistic about expectations — crypto is on the path to professionalization.