Cryptocurrencies such as Bitcoin, Litecoin and Ripple had begun gaining ground as early as 2013, when all three coins had seen rising valuations, despite wavering charts. However, it wasn’t until 2017, particularly mid-year, that the worldwide crypto boom had erupted, allowing these alternative currencies to join the global financial market. As the crypto sphere made its way out of the fringes and within the mainstream, people who were not familiar with cryptocurrency nor the financial technology sphere in general, had started taking notice.
A Growing Crypto Marketplace
Between January 1, 2017 and December 16, 2017, Bitcoin alone had risen in value by 2,000%. Other altcoins, such as Ether, DASH and DOGE had undergone steeping values as well. Major crypto trading platforms such as Binance had been accumulating up to 250,000 users per day.
Each quarter of 2017 had seen a rise in the percentage of businesses that accept cryptocurrency payments, particularly that of Bitcoin. By Q4 2017, there had been a 12% hike in businesses that accept crypto.
In early June of 2017, the cryptocurrency market had surpassed $1 Billion in market capitalization. By December 16, 2017, the total market cap of cryptocurrency reached a colossal peak of $6 Billion. This was crypto’s most precipitous market cap jump, as it was more than double than that of its previous month’s (November 2017) market cap of $232 Billion.
Clearly, people were taking notice of cryptocurrency and to date, 2017 has been its biggest year. While the industry has the potential to grow further and generate larger valuations and market caps, 2017 is the year that put crypto on the map, begging the question as to how this was possible. The following analysis explains the probable causes behind the cryptocurrency boom of 2017.
The Sharp Increase Of Cryptocurrency In 2017
There are a number of factors that contributed to the global cryptocurrency explosion of 2017, which lie in both the convenience of using crypto and the actions taking place in the industry. The combination of these forces at hand had brought about a hefty dose of media attention onto the industry, shedding a light without which many still might not have heard about. Here are the most potent causes of the boom:
Institutional investors have brought in an onslaught of capital to the crypto industry. Although it had taken them years to ease into using cryptocurrency, 2017 saw their presence as a major contribution to the cryptocurrency market. After all, institutional investors wield far greater sums of money than private individuals and thus have had greater funds to pour into the market.
The investments and their investors were twofold: retail and institutional, with retail investors from China, Korea, and Japan bumping up Bitcoin prices in the first half of the year. In the latter half of the year, institutional money had started to flow in, with heavy investments from US retail. For example, Coinbase has accrued over 12 million users alone. The incoming investments had come from traditional financial institutions like hedge funds, high-net-worth individuals, family offices and sovereign wealth funds.
Fragmentation & Wider Options:
Bitcoin, the world’s first cryptocurrency burst onto the scene with promises of anonymous transactions, decentralization, instant transacting, low transaction costs, a mineable nature and blockchain-based security. As Bitcoin had taken off, more cryptocurrencies have been emerging onto the crypto sphere, bringing along more distinct features and capabilities. This has led to fragmentation in the industry, developing a marketplace that mimicked a traditional one, with a wealth of altcoins that provided competition and the birth of niche subsectors. For example, the production of Ethereum was a move toward innovation in the crypto space, with a new blockchain and a system that could process smart contracts.
Thus, these new altcoins had largely contributed to the cryptocurrency market cap. Since Bitcoin’s inception in 2009 up until 2017, it has been dominating charts, making up 85% of the total market cap of all cryptocurrencies, until 2017. From that year onwards, Bitcoin’s market cap dropped to 50%, but not due to a loss in value, as it has seen sharp gains in much of the year. Instead, the emergence of new cryptocurrencies have appreciated in value along with Bitcoin, taking over the market, but not by outshining Bitcoin. The addition of new altcoins also meant more supply of money in the crypto space. Then there are also the niche groups and communities endeared by these coins, who have contributed advocacy and the buzz surrounding them.
A Rise In ICOs:
The crypto boom is largely owed to the rise of Initial Coin Offerings (ICOs), which have reaped a wealth of value to the industry. In 2017, ICOs have increasingly accounted for startup funding, exceeding venture capital as the main funding method, reaching a total of $2.3 Million raised by ICOs in late September 2017. Thus, ICOs are behind the shift of traditional capital flow to the cryptocurrency space. ICO sales add more value to the cryptocurrency market, since they involve the sale of crypto tokens, which substantiates their monetary value. Additionally, an ICO involves participants to exchange Bitcoin, Ether, et al. for newly produced tokens, which in turn creates a considerable amount of growth and added value to the tokens.
The Internet has helped in the ballooning of the cryptocurrency space, in that it contains the prospect of virality, ie, the rapid spread and popularization of something via web-based communication. The combination of three Internet forces have contributed to the growing crypto industry. These forces are: social media, Internet search, and the online news media. The online news media works in real time, delivering the latest news to those who get their news from an Internet-connected device.
Thus, millions of mobile, laptop and computer users were made aware of cryptocurrency and its increasing market. Social media has had a strong capability for sharing, with retweets and likes adding to the circulation of crypto news. Finally, there is Internet search, a powerful marketing tool, which can show people what Internet users have had their sights set on for various periods of time. Google Trends data has shown that the search interest in the term “Bitcoin” reached an all-time high on November 12, 2017.
New Actors In The Industry:
The growth of cryptocurrency has been accompanied by the rise in new players shaping the field and reinforcing its legitimacy. 2017 has not merely seen active crypto participants from traditional financial institutions. More actors have been cropping up to serve the crypto industry, creating more nuance and complexity to the industry and helping it develop far beyond the B2C space.
Some of the new crypto-focused institutions have included: single coin investment trusts, actively managed crypto asset hedge funds, passive index funds, funds of funds, futures, and several applications for exchange-traded products. There has also been the appearance of custodians who assist non-crypto, asset-only funds buy and store crypto assets. In addition, the essential crypto services like wallets and exchanges have also tuned up their crypto capacities, by offering the trades of more altcoins besides BTC and ETH.
The Future Of The Crypto Market
Cryptocurrency has had a watershed year in 2017 for a variety of reasons. Today, cryptocurrency is the world’s fast-growing asset class and although it has dwindled in value time and again, including in 2018, its web of actors and communities is not shriveling up anytime soon. Despite some of its drawbacks and fluctuating prices, crypto has managed to disrupt the financial industry and is an important aspect of the ever-changing 21st century world. Its market will predictably continue to grow and innovate.
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