Q4 2017 Crypto Market Recap

The first few weeks of 2018 have been an exciting time in the world of crypto, but I thought it would be interesting to look back and put together a recap of the last 3 months of 2017. We ended 2017 at an all-time high in crypto asset market cap, but developers, governments, and financial institutions have all begun raising important questions around where are we, where should we be going, and what should we be taking credit for?

We likely won't know the answers to these questions for some time, but I think it's important to zoom out from the daily price charts and take a macro perspective on what's happening in the broader crypto market. Here are what I see as the highlights of the Q4 2017 crypto market:

1. Euphoric Market Conditions: ~4x increase in total market cap from start of Oct 2017 to end of Dec 2017

It was a fantastic time to be a crypto holder between September 2017 and January 2017. The price of bitcoin increased by 3x, the price of ether increased by 4x, and the price of some altcoins increased by over 100x.


Holders of RaiBlocks (XRB) saw a 750x return from $0.04 on August 1, 2017 to over $30 by the end of 2017. As investors moved in droves to participate in this rise of altcoins, bitcoin reached an all-time low in terms of percent of total crypto market capitalization.


During this period, Ripple also briefly surged past Ethereum to become the second largest crypto asset, and the creator of Ripple became the world's fifth wealthiest person on paper (ahead of Larry Page, Sergey Brin, and Larry Ellison).


Of course, the surge in prices led to massive interest from consumers, and many exchanges were overloaded with demand. Some even shut down new account signups. In fact, the demand for accounts on exchanges even led to a secondary market for accounts. People were paying $50+ just for an account on Binance.

2. Significantly more interest in crypto and blockchain in the equity markets and mainstream media

By late 2017, every major news organization was publishing or broadcasting daily stories on bitcoin, blockchain, ethereum, and the crypto market. Looking at Google trends, interest in bitcoin peaked in the week prior to Christmas, and more people were searching for bitcoin-related topics than Twitter.



This media interest created a positive feedback loop with both the crypto markets and the equity markets. Companies created hundreds of millions of dollars of "value" by associating themselves with Blockchain. Kodak's market cap tripled after announcing they would be launching a cryptocurrency, Seagate's stock jumped on a report of them owning a portion of Ripple, and Long Island Iced Tea Corp's stock increased by nearly 4x after changing its name to Long Blockchain Corp.

3. Modest progress in developing functional use cases. First popular consumer-facing dApps released

CryptoKitties became the first mass-market/consumer-facing decentralized application, with hundreds of thousands of users trading nearly $20M worth of cute, digital cats that lived on the Ethereum blockchain. CryptoKitties became such a massive hit it took over anywhere from ~10-25% of the total Ethereum network's transactions.



Activity on CryptoKitties has died down, but users are continuing to collect and trade cats. The most interesting aspect of the CryptoKitties phenomenon was the unique approach they took to get users interested in how decentralized applications work. The team that created CryptoKitties was able to educate users on how to use a crypto wallet like MetaMask to send transactions back and forth on the Ethereum blockchain. A number of developers were also able to build valuable companion apps to CryptoKitties without direct API access (like a traditional centralized app would require) because all of the kitty data lived on the public blockchain, one of the most important benefits of decentralized applications.



Outside of CryptoKitties, we have also seen progress in dApps like decentralized exchanges, but UI/UX continues to be a major challenge, which is why centralized exchanges will continue to dominate the market for the near-term future. There are other companies and foundations which have been working on dozens of other dApps as well, but much of the product progress for others remains relatively technical and harder to experience and understand via consumer-facing dApps.



"Traditional" companies have begun testing blockchain technology in labs, or at a minimum, announced they will be testing "distributed ledger" technologies to solve problems in databases, supply chain, content rights, etc. The "go-to" quote for executives in the last few months seems to be "We don't like bitcoin, but we like blockchain," and many experiments are getting kicked off at Fortune 500 companies.



Finally, Vitalik summed up the sentiment around crypto development in 2017 with his tweet on December 12. There is a lot of excitement and promise in the crypto market, but it's hard to imagine that crypto has already "earned" or created $500B+ of market value.

4. ICO market cooled down significantly. Interest has moved to launching crypto funds

In early 2017 the number one use case for Ethereum was ICOs and launching new tokens. This died down by Q4 2017 as investors became more and more wary of scams. Generally, investors are much more skeptical of new token offerings now, and the initial wave of euphoric, uninformed speculation in new tokens has cooled down.



Instead, the new hot trend is launching crypto funds (why go through the work of setting up a complicated ICO if you can make just as much money trading other tokens!). Mike Novogratz and Mike Arrington's funds were the most well-publicized ones, but there was a multitude of other active funds, index funds, and funds of funds going out to raise capital to take advantage of the growth and volatility in the crypto market today.

5. Mixed news on regulation and acceptance by traditional financial institutions

Regulators around the world began to take a more active role in crypto markets in mid- to late 2017. Some countries took very optimistic viewpoints around crypto, but most of the larger countries are adopting a 'wait and see' cautious approach to crypto regulation. For example, in December 2017, SEC Chairman Jay Clayton released a major statement on ICOs outlining a clearer view of what constitutes a security in the SEC's view and urged investors to "exercise extreme caution" when investing in ICOs. Interestingly, the coordination between individual agencies and regulatory bodies seems relatively limited, and it is still unclear which authorities will have the final say in different aspects of regulation.



One of the most anticipated - but in hindsight, underwhelming - developments in Q4 2017 was the launch of bitcoin futures trading at the CME and CBOE. Crypto enthusiasts were excited about the potential for mainstream Wall Street institutions to pour more money into crypto through established exchanges (and the ensuing increase in prices). Indeed, during the first launch of bitcoin futures at the CBOE, prices rose so much that trading had to be paused. Nevertheless, after the initial launch, the futures became something of a non-event in the crypto world, with very small volumes relative to the primary crypto exchanges.

Conclusion

Weathering the ups and downs of the crypto market can be anxiety-inducing on a day-to-day basis, but zooming out to review a longer period of time is an important exercise to understand what's truly happening in the crypto market. I'd love to hear your perspectives on this post and what I missed, so please leave a comment on what you see as the most important events in the last few months in the crypto market.

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Hope you enjoyed this market summary! I'll be back in April for the Q1 2018 Crypto Market Recap!