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The worst asset of 2018 – 06.07.2018

As the first half of 2018 is ending, it is a good time to sum up the interim results of this year for investors.

In general, the global financial markets’ behaviour in the last 6 months can be described as a calm before the storm.

Indices of the leading equity markets showed a decrease up to 10%, the current yield on bond investments is in the zero area after the last 6 months in the US authorities raised the intertest rate, the same is for the gold and the largest real estate markets. In addition, experts unanimously predict the approach of the next financial crisis. Therefore, more and more clouds appear over the financial markets, and it is completely unclear what can keep the prices of investment assets from a massive fall in the second half of the year.

Of course, there were rare glimpses of positive on this bleak picture, for example, the growth of Tiffany shares by thirty percent or LVMH (Louis Vuitton Moet Hennessy) shares by twenty per cent, but this is clearly not enough to break the negative trend.

Therefore, the vast majority of market participants will most probably face negative yields from active component of their income in the year 2018. The active component is the one obtained due to changes in the market value of assets. In other words, most of the investors’ inflows in 2018 are expected to come from passive sources (e.g. rent, interest etc.)

While prices of all kinds of assets behave more or less in the same way, there is one group of assets that shows not just a negative, but a horrendous dynamic since the beginning of 2018.

These are digital assets or crypto assets. The total capitalization of the crypto market since the beginning of the year decreased by 70%, the price reduction for some individual items exceeded 99% (more than 100 times price drop).

If this kind of things happens in traditional financial markets, this would mean a complete collapse of the industry. However, owners of crypto assets remain calm.

And there are several reasons for this.

First, the capitalization of the cryptocurrency market is still three times higher than the figures of the middle of last year. It means that a relatively small number of market participants actually suffered from the price drop.

Secondly, there are no major players in this market, despite the hot air on the opposite coming from the most active part of cryptocommunity. Leading financial institutions continue to experiment with their own blockchain projects, but they are not in a hurry to acquire super-risky crypto assets. Moreover, the status of crypto-currencies is yet to be defined in most countries of the world, which means that investment funds and banks cannot invest their own funds at all. Thus, cryptomerket is financially isolated from traditional financial markets.

Thirdly, the phenomenal growth of the bitcoin and other crypto-currencies rates in the second half of 2017 is still very fresh in memory, so even those whose crypto-savings have now depreciated are not in rush to sell them, hoping for a repeat of last year's miracle.

Unfortunately, miracles in the markets happen much less often than would be desirable by their participants. For the crypto-currency market, this statement is more than fair.

In spite of the fact that crypto assets are financially isolated from traditional assets, cryptomarket is under undoubtful informational influence of traditional markets. So, if a full-scale financial crisis in the main markets breaks out in the fall, this will signal a next stage in the decline in the prices of digital assets.

Further, the regulation of crypto assets is progressing very slowly. The significance of the flagships of crypto-regulation - Gibraltar, Belarus and Malta - is miniscule in traditional financial markets, while large countries are more inclined to halt crypto-currencies. The US authorities regularly accuse cryptoprojects in being fraudulent or non-compliant with US law and are very active in stopping them; China banned ICOs on its territory; even in Singapore, a country that is traditionally regarded as friendly to all innovations, including crypto assets, authorities warn about the risks of investing in digital assets and consistently adhere to the policy of non-regulation of crypto assets.

Finally, the negative dynamics of cryptomarket will enforce a large number of blockchain projects to cease to exist until the end of the year. Consequently, there will be additional grounds to accuse cryptomarket participants of fraudulent actions and to prohibit the use of crypto currencies under a specious excuse of protecting the interests of investors.

Sad to say, the cryptomarket in its present form cannot change its fate for the better, as its fate is decided externally, beyond the market.

Self-regulating associations of blockchain projects change very little, because each of them express the interests of a small group of participants of cryptomarket.

To promote the ideas of the blockchain technology and crypto-currencies and defend the interests of cryptocommunity on the global scale, the organization should manage to unite most of the projects. And this contradicts the very ideology of crypto-assets, which puts first the anonymity of possession of crypto-currencies and decentralization.

So, crypto community in a dead end?

It seems to be so.

The bitcoin already experienced something similar in its history. At the turn of 2013 and 2014, his price grew tenfold compared to the level of the beginning of the year 2013 before six times fall in the first quarter of 2014, and a new price record was set only three years later.

A price surge of bitcoin 5 years ago was short to attract mass attention to it, therefore the cryptomarket developed relatively calmly for three years after the previous burst of bitcoin prices, not experiencing external interferences.

However, the growth in the value of cryptoassets in 2017 lead to dramatic change in the information aura around cryptocurrencies. Cryptoassets have become a well-known phenomenon, and now they are paid close attention not only to individual enthusiasts or just curious people. Representatives of the authorities in many countries are also monitoring the progress of the situation on the cryptomarket with a very limited patience. Therefore, the more negative news come about crypto-currencies and crypto-projects, the stronger the temptation to close cryptomarket in its present form forever.

The only salvation for cryptocurrencies can be brought by the global financial crisis. Then the authorities will be busy with solving traditional financial markets problems and for some time the fight against non-traditional markets will be postponed.

Under other scenarios, the Crypto-currencies are at risk of remaining in history as the worst asset of 2018, because the year 2019 may not come for them.

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