Don’t Prepare for a Repeat of 2017 in the Crypto Markets

In the last few months, the feeling has returned, the most recent declines notwithstanding. The reason is that speculation on crypto markets is out of control. Now we have “worthless” tokens with market caps worth hundreds of millions of dollars. There’s money to be made. Is all this because of a deadly virus? Or is this just a repeat of the 2017 bull run? The things driving this year’s craze are different, and so will be the aftermath.

Bored at Home

Unlike in 2017, people are bored and they are stuck at home. Whether unemployed or tethered to a computer in their new bathroom/office, people across the world have nothing better to do than obsess over price charts and dream of insane gains.

Inflation Fears

In 2017, the dollar looked great. This was a year after Britain decided to Brexit, which hurt the pound and the euro. Now, the dollar is being printed at an alarming rate and the US Federal Reserve has modified its policy to maintain an inflation rate.  Companies can use bitcoin as an asset to hedge against inflation.

Institutional Investment

Aside from products that bring cryptocurrencies to traditional markets (like the Grayscale trusts), real publicly traded companies are buying bitcoin. Wall Street firm Microstrategy bought $250 million of bitcoin to fill its treasuries. With big companies seriously considering bitcoin as part of their financial strategies, crypto is likely to see more, long-term bitcoin holders.

More Friendly Banks

Banks were skeptical about bitcoin. In 2017 and 2018, crypto lovers loved to hate JPMorgan chief Jamie Dimon. Since then, JP Morgan has been working with blockchain technology and creating its own coins. In fact, they’ve changed their tune, and so have many other banks. With the banks connecting clients with exchanges, it is easier than ever to get into crypto.

And Even More Friendly DeFi

But who even needs banks when you’ve got DeFi? Bitcoiners in 2017 loved to talk about overcoming fiat currencies. Now, that change is starting to happen. The DeFi craze has sent Ethereum’s price, along of course with governance tokens, skyrocketing. Plus, DeFi is really remarkable. Websites like Compound.Finance let users lend and borrow in a totally trustless environment. There is now a way to store your money, earn interest, or take out loans without using a bank. That is a big deal.

Decentralized Exchanges

The massive trading volume on decentralized exchanges has shown the power DEXs can have. Now anyone can launch any token at any time… and at any price. In 2017, the big exchanges were king. Binance became a billion dollar company. Now, all you need is to know how to write a smart contract. Plus, there’s reward for liquidity on and off DEXs.

Finally, More Professionals

Since 2017, engineers, marketers and journalists have all had time to educate themselves about blockchain technology. This makes it easier for companies to reach mainstream consumers. Perhaps more importantly, computer engineers have had time to dive into the blockchain space and start to come up with innovation.

Good for Business, Bad for Survival

Overall, we see a lot of fundamental reasons for the blockchain’s success. Now that banks have caught on, it is only a matter of time before more industries follow suit. On the other hand, some of the above-mentioned factors are short term. What happens when the DeFi/yield-farming craze settles down? What if the US dollar stabilizes? When will scaling allow for instant, practically free payments again? Even the bullish signs don’t mean that bitcoin will just go up. Another currency or virtual machine or smart contract maker could suddenly swoop up all our digital money. The Polkdot team had been working for years to create a product, only to rocket to the sixth highest crypto by market cap in just a few weeks. The drivers of this bull run are both long-term adoption and short-term DeFi speculation. This is very different from 2017’s bull run. It is important to keep in mind that what’s good for the blockchain is not always good for the price of bitcoin (or any altcoins). In 2020, the mantra still holds true: only risk what you are willing to lose.