2018 was an anticlimax for many. It was an off-script year. Late 2017 was full of hype. A craze that saw shell companies and “entrepreneurs” draft appealing white papers—it was a thing then– and complementing flashy websites to lure gullible investors—most of who rode in late and were ill-informed having not delved deeper into the mechanics of blockchain and what ICOs were, to pour their hard-earned dollars in projects that were supposedly meant to rival FANGs and other high value US stocks. The difference was that these new solutions rode on the revolutionary digital ledger, blockchain.
The Hedge Fund FOMO
Surprisingly, investors were not the only ones who found themselves in the ICO and crypto train. By early 2018, leading analysts, high-value investors and other Wall Street luminaries led by Mike Novogratz, Blythe Myers, and Dan Morehead were raving up, airing their two cents on how crypto would live up to expectations and how Bitcoin, in particular, would rise to new highs by the end of 2018. Seeing these rosy previews, crypto hedge funds of every size, stripe and employing different strategies were quickly set up shop.
However, it only took a quarter for them to realize their detrimental mistake. Soon, dropping asset prices and the lack of infrastructure to accommodate institutional grade players became a major concern for these funds. Because the focus was on exchanges and price—pumped mostly be retail investors—custodial solutions were limited neither were their regulatory clarity guiding ICOs.
They quickly realized that they had an ambitious project at the height of a hype, fanned by weak investors and most ICO digital assets were after all securities and vehicle of fraud. Nevertheless, as sordid as it was, 2018 turned out to be a year of reckoning and even with this, most continue to operate urging patience despite a dismal track record.
The Price Winter
Evidently, it was a tough year and Bitcoin bombed 80 percent from 2018 peaks. As a leader in the space–and an asset from where most coins are derived, the slump was mirrored by altcoins. Some asset prices as Cardano, for example, tanked 120 percent, erasing gains of 2017. Altcoins ballpark losses were more than 90 percent. No doubt, those funds that rolled out services and net long at peaks were stricken. Certain funds even had to activate gating clauses to lock in investors preventing them from liquidating their shares in the face of extreme market conditions.
In a letter to investors, Pantera Capital, one of the earliest cryptocurrency hedge fund led by Dan Mooreland said 2018 was a “difficult year,” and the “prolonged drawdown was a cause for reflecting on the thesis of utility tokens.” It came as no surprise, although it is one of the largest and successful funds with a lifetime return of over 10,000, the fund printed a 40 percent loss in Q3 2018 and made worse by widespread, a global crackdown on ICOs whose founders claim to sell utility tokens.
And it was not Pantera Capital alone, from the look, those funds that launched at peaks didn’t manage to clock profits, leaking from the very start. Mike Novogratz’s benchmark index—for example, was down 50 percent between mid-Q2 2018 and Q3 2018 despite the former’s insistence that infrastructure was available for institutional grade players to directly invest in crypto projects.
There is Hope
But at the depth of last year’s bears, projects founded with the goal of generating value continue to weather unprecedented downturns after been battened down by free falling asset prices and shrinking confidence. Most are now set at the tight and tedious work of development while scams have abandoned. Such steps are what the ecosystem needs and as open source as it is, development guarantee long term sustainability that will in turn spur creation of solutions with real usage. In light of current obstacles especially from regulators and apprehensive investors not willing to sink their monies after being rammed down with caution, blockchain solutions would likely roll out and gain traction in the next five years.