Section 1: Global market update
EDITORIAL: GLOBAL STATE OF THE DLT ECOSYSTEM
Please note that the present report covering Q4 2019, is issued as Q1 2020 starts, as will be the case from now on. This issue of Blockchain Quarterly is somewhat light, compared to previous editions. Overall, the material that has emerged from this review shows an incremental evolution, rather than disruptive developments. To an extent, this slowdown in important news is proof that a moment has been reached in the growth of the technology and its business cases when the development of products and services takes some time.
Our deep impression, when performing press reviews, is that there are still many theoretical, forward-looking, almost philosophical articles being published, mostly accurate, but with relatively few success stories hitting the headlines. The hype, which had picked up in the first half of 2019, is now at its lowest again, with worrisome positions taken by some countries, and no real technical progress, or proof, or public adoption to counterbalance this.
COMMENTS ON CRYPTO-ASSETS MARKETS
Cryptocurrency prices have gone through some turmoil during the last three months.
The crazy, impulsive move seen in the spring was too good to be true. It was too much; the surge in prices was unreasonable. In that respect, the current retreat can be seen as a stabilization within a more significant trend.
It is always challenging to explain recent movements in financial markets; and somewhat easy to find reasons for past behaviors, but as we will detail chapter by chapter in this Quarterly, there has been a shortage of fundamentally positive news in the crypto world.
As outlined in our previous issues, all categories of cryptocurrencies are not behaving in an entirely similar manner. While Bitcoin has held some of the gains it made in 2019, this has not been the case for smaller-platform native currencies, let alone ICO tokens which are continuing to collapse, in what looks to be the middle of the cryptowinter, for them.
The correlation between crypto assets has significantly decreased for the last year.
This decorrelation seems to be indicating a maturing sector as cryptoassets have very different natures.
Exchange volumes declined significantly in September compared to this summer. Data gathered from exchanges remain unreliable, so it is challenging to assess genuine exchange volumes worldwide. Still, the figures indicate that, overall, there is no sign of volume fading.
When liquidity decreases, volatility can be expected to increase. Lately, this has been the case for crypto assets, because, as just mentioned, volumes are down. And indeed, we continue to see that whenever a market shock occurs with an increase in volumes, prices increase significantly.
Overall, observers expect volatility to continue, and indeed, there is no reason we can find to indicate otherwise, not before more adoption occurs.
INTERACTION WITH MACROECONOMICS
After a shaky 2018, stock markets are recording a positive 2019, which extends this growth cycle. As at the time of writing, share prices of American companies are pushing their all-time highs. Regardless of whether you regard this as total nonsense, or you see this as an effect of unprecedented advances in productivity thanks to robotics, internet platforms, and globalized competition, the fact remains that global markets, as a whole, have decided that stocks were not yet overpriced. How long it will take before we see a significant correction is unknown.
That’s how it is, however, we have no choice but to wonder, what if it continues, and what if it crashes?
If stock markets crash in short to mid-term, reactions by central bankers are likely to be similar to those implemented in 2008: quantitative easing, increasing liquidity to prevent the economy from being short of funds. However, experts doubt that it will have the same impact it had after the GFC and may require central bankers to go even further with the level of money creation. In turn, this will dilute the holdings of individuals and companies who sit on cash, and this could negatively affect confidence in politically-influenced fiat currencies, which may then lead to a flight of capital to diversify into crypto assets, such as Bitcoin.
On the other hand, if stock markets do not crash in the short or mid-term, this would mean that companies are conducting good business and generating revenue for investors, thereby fueling investments in technology, among them, blockchain. It is entirely feasible that sustained signs of progress in solving current DLT issues, combined with an abundance of capital, could trigger, and then fuel, yet another crypto bubble.
An often-shown picture is Gartner’s curve of adoption. It is indeed suggesting that blockchain still has a long way to go, and we are only just at the beginning of the journey on the road to widespread usage.