Cryptocurrencies ... is there light at the end of tunnel for investors or has bubble burst?
After an 80pc fall in the value of assets like Bitcoin, cryptocurrencies are a dirty word among small investors, but firms may not be turning their backs on the technology
Ayear ago, Bitcoin was trading at €16,000. Today, it's €3,600. So was it all just a bubble? Yes, say some. No, say others. "Demand has fallen, no question," says Peter Nagle, the co-founder of the Cork-based cryptocurrency exchange Bitcove.ie.
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"There was an element of a bubble involved. But while there's been a big drop in price, there have been before too. It's cyclical and interest is still there."
This year, analysts say, will go some way to sorting things out.
But the last few months in Ireland have not been particularly promising. Towards the back of 2018, the country's highest-profile project - Ireland's 'Crypto Coast' initiative - petered out for a variety of reasons, according to one of its founders, Reuben Godfrey.
Meanwhile, a succession of court cases and high-profile hacks placed Bitcoin and Ethereum in a negative light, associating them with the proceeds of crime rather than efficient alternative payments.
And there appears to be a line of small-time investors that dabbled in cryptocurrencies for the first time in 2018, only to get financially burned.
"People got overly excited and now they're overly depressed," says John Gleeson, a Dublin-based Bitcoin trader and writer. "It's dropped a lot, but it's the fourth time it's dropped 85pc or more. A lot of what happened is related to the false promises of other alt-coins that have come to light. But if you bought and held Bitcoin for any longer period than two years ago, you're actually up."
How many people actually own or have traded Bitcoin? Some industry practitioners estimate it at around 100,000. "We've dealt with around 40,000 ourselves in Ireland," says Peter Nagle, whose firm helps people to buy and sell Ethereum, Litecoin, Ripple and other cryptocurrencies. "But there are lots of different services out there."
One difficulty in estimating the size of the Irish crypto market is a policy of non-engagement by banks and conventional equity-trading firms. None of the major financial companies that people usually go to will deal in crypto-assets such as Bitcoin.
"Goodbody does not advise on or invest in cryptocurrencies on behalf of clients and does not have any plans at this time to offer access to that asset class," a spokesman for the brokerage told the Irish Independent.
Other main brokers here have a similar rule. This doesn't mean that Irish investors using such companies don't invest in cryptocurrencies. Within mainstream financial firms, some funds have allocated percentages for what are called 'alternative strategies'. This sometimes includes crypto-related enterprises or funds, although brokerages here say that they don't provide advice on such entities.
The biggest problem in tackling crypto assets, bankers say, is its unregulated status.
The rules aren't transparent or reliable enough, nor is there an administrative chain of responsibility that regulated investors can live with.
In the US, some institutions are moving to address this. The owner of the New York Stock Exchange, Intercontinental, is launching a new crypto-focused exchange called Bakkt to let people buy, sell and spend digital currencies like Bitcoin.
Its big draw is that it promises to be regulated, giving a degree of assurance to those interested in cryptocurrencies. (It is still waiting for approval from the Commodity Futures Trading Commission). Because of this, and the bluechip array of investors it has assembled (including Microsoft), it has just raised $182m in funding.
But even if cryptocurrencies like Bitcoin become more acceptable as traded commodities, they still face the enduring problem that cryptocurrencies have had since the beginning: when, if ever, will ordinary people feel they can use the technology? From the effort to setting up a Bitcoin wallet to finding somewhere you can actually spend it, cryptocurrencies are simply out of bounds for the vast majority of ordinary people.
"We have a cryptocurrency ATM in Cork and are going to put one in Galway and then hopefully in Dublin," says Bitcove.ie founder Peter Nagle.
The idea is to let people exchange euros for Bitcoin and vice versa. But even if this works, it's not clear that people have many options to use cryptocurrencies for the kinds of activities they associate with conventional money.
While retailers such as Microsoft's Store and Overstock.com have accepted Bitcoin-compatible payment systems (such as Coinbase) for a while, most online retailers do not. For example, two-thirds of Irish shoppers use Amazon, but the web giant doesn't take cryptocurrencies.
In some respects, things have actually gotten worse. The influential online payment firm Stripe recently stopped processing Bitcoin payments because it took too long for transactions to go through.
The lack of regularised commerce that involves cryptocurrencies places an inordinate spotlight on shadier activities where crypto is front and centre. So when the Luas.ie website was hijacked earlier this month, most people learned that the hackers were seeking a Bitcoin to unlock it.
Fraud, too, is a problem. Because so much activity around cryptocurrencies is unregulated, scams and flim-flam operations are common. Last year, US authorities undertook hundreds of formal crypto fraud investigations with 50 cases taken.
The high-profile digital coin BitConnect went bust in dramatic fashion last year following a cease-and-desist order from US regulators. The enterprise, which had been valued at over €2bn, is being pursued for losses of almost €1bn. Market analysts say that much of this was invested by ordinary people, lured by the promise of getting rich quick on a rising crypto market.
But it's not all doom.
Among the scepticism and doubt lies enthusiasm for the most important enabling technology behind cryptocurrencies - blockchain.
Here, business looks brisk. Dozens of Irish institutions have committees or steering groups committed to integrating more blockchain principles into their own systems. Banks such as AIB, Ulster Bank and Permanent TSB are trialling blockchain-based payments through schemes like Project Greenpay.
"This is a big year for adoption of the technology in real life applications," says Lory Kehoe, managing director of the ConsenSys's Ireland office. ConsenSys is a blockchain company set up by one of Ethereum's co-founders, Joe Lubin.
"A number of companies are bringing their solutions into the world for consumers to use," says Kehoe.
That includes platforms such as Komgo, a new blockchain platform to facilitate oil and gas deals that has been launched by large multi-nationals such as Shell, Citi, BNP Paribas and ABN Amro. The venture will "seek to digitalise the trade and commodities finance sector through a blockchain-based open platform", the consortium said in a statement.
"This is real," says Kehoe. "The government and public sector are getting involved too. There are now three projects that the European Commission are working on and Ireland is a part of this. The aim is to try and create standards sooner rather than later, so that by summertime there will be hundreds of companies that are part of it. We will have a functioning legal entity as to how to drive forward with the technology."
Despite the upbeat assessment, ConsenSys itself has not been immune from industry pressures. The firm recently announced that it was letting 13pc of its staff go in a 'streamlining' exercise.
Kehoe says that this does not extend to the recently opened Irish office, which currently employs 40 and is still hiring.
"There'll soon be significant announcements from ConsenSys in Ireland as to projects with Irish companies," he says. "We're still growing in Ireland. We're a really strong team here. So the answer to whether we're downsizing here is no."
Kehoe isn't alone. Blockchain, as opposed to straight cryptocurrencies, has a growing number of advocates from 'respectable' business circles.
"With the amount of the institutional money entering the space and increasing involvement and adoption by such top-level financiers, it's inevitable that in 2019, blockchain, the underlying technology behind cryptocurrencies will come to the fore," says Angel Versetti, CEO of Ambrosus, a blockchain-powered Internet of Things network for food and pharmaceutical supply chains.
Some services are already there, others say. "In growing numbers, consumers are trying the Rize app by live streaming company YouNow, downloading the Brave web browser, or utilising events ticketing service BlockParty which runs concerts and music festivals through their blockchain-based application," says David Wachsman, founder and CEO of Wachsman, a services firm with clients such as Coindesk and Indiegogo.
"The recent sharp plunge in crypto markets ... has had a knock-on effect and has created a PR challenge for the entirety of blockchain technology. This is a short-term problem, as the actual technology continues to mature and advance with real-use cases."
Wachsman's view that cryptocurrencies are set to be around for the long-term is echoed by others in blockchain businesses.
"We will continue to see expansion in this area," says Brent Jaciow of Utopia Music, a blockchain-powered music tracking and attribution platform. "Some of the primary functions include enabling fractional ownership of assets, allowing the tokenisation of assets and ideas formerly impossible with traditional capital markets."
Local Irish proponents haven't lost heart in cryptocurrencies.
"For me, Bitcoin has never been stronger," says John Gleeson. "The network is still extremely secure and has never been hacked. We're in a cycle."