When Moon and when Lambo? Not in 2018!
To put it short — 2018 left a lot to be desired. Any planned trip to the moon had to be canceled and the drive back from the airfield was in an Uber. When the hype train of 2017 came to a standstill many investors felt that crypto is over. But is that really true?
To find out we crunched numbers of 178 digital asset exchanges* worldwide and arrived at the following key findings:
- US’s global market share dropped from 50% in Q2/17 to 7% in Q4/18,
- Asia now responsible for 81% of global digital asset trading,
- Fueled by a record Q1/18, 2018 global trading volumes are still twice as high as in 2017,
- 2018 digital asset volatilities are considerably lower than in 2017 but remain high compared to classical markets,
- Crypto-to-Crypto trading is rising; Tether USD (USDT) trading now 2.5 times higher than USD.
US’s Market Share Dwindles
On a global level, the average digital asset trading volume more than doubled from $2.4B/day in 2017 to $5.0B/day in 2018. However, in the US, trading volume declined from $800M/day in 2017 to $750M/day in 2018.
Looking at the change from Quarter to Quarter, the picture is even grimmer for the US. In Q4/2018, the US only accounted for 7% of global digital asset trading making it the 6th biggest market in the world. The significance of this drop becomes clear when looking at Q2/17 when the US had a global market share of over 50%. This declining impact of the world’s biggest economy in global digital asset trading leaves the prices of Bitcoin and other cryptocurrencies at the mercy of non-US countries and is likely to put the remaining hopes for a quick approval of a Bitcoin ETF to rest.
While the US’s market share is dwindling, exchanges originating from China were able to increase their market share from 6% in 2017 to 22% in 2018. The world’s biggest digital asset market by volume is now Hong-Kong with a market share of 29%. South Korea, one of the former powerhouses of crypto, lost 9% of its market share from 2017 to 2018 but is showing strong signs of recovery in the last quarter of 2018.
Top10 Biggest Exchanges All Outside the US
Looking at individual exchanges, the picture looks all too familiar. Except for one exchange, HitBTC, all of the Top10 digital asset exchanges (by volume in Q4/18) are based in Asia. US’s biggest exchange Coinbase only comes in 12th. In comparison, just little over a year ago, US-based exchange Poloniex held the pole position both in Q1/17 and in Q2/17. Today, Poloniex merely comes in 31st. The full ranking across all 178 digital asset exchanges is available here.
A striking property of the ranking is the great mobility across ranks. Only one of today’s Top10 exchanges even existed at the beginning of 2017 and even in Q3/2017 only four of the Top10 exchanges reported any trading activity. Binance and OKEX are two examples of exchanges that were just founded little over a year ago and quickly rose to the very top.
Volatilities And Prices Declining
From January 1, 2018 to January 1, 2019, the prices of all major digital assets saw a dramatic decline. Bitcoin (BTC) and the relatively new EOS fared the best with a decline of “only” 65–70%. The infamous last rank holds Bitcoin Cash (BCH) with a decline of 93%. This sharp decline can be attributed to the “hash war” between Bitcoin ABC and Bitcoin SV fought in mid-November 2018. Even when accounting for the split coins, Bitcoin Cash holders still faced an annual loss of 90%. Ether (ETH), Ripple (XRP) and Ether Classic (ETC) all lost about 81% and are thus right in the middle of the pack. Privacy centered coins Monero (XMR), ZCash (ZEC) and DASH saw considerable losses ranging from -85% to -92%. Generally, smaller cap alt-coins saw a proportionally bigger loss than more established currencies such as Bitcoin signaling that investors sought safety in those currencies during the bear market.
In 2018, daily volatilities of all Top10 digital asset trended lower compared to 2017. Specifically, Q3/18 saw new all-time low volatilities for almost all digital assets. In the last quarter, volatilities saw a slight increase but are still considerably lower than in 2017. With around 3% daily volatility in Q4/18, Bitcoin (BTC) remains the most stable digital currency. Nonetheless, compared to classical markets, such as S&P 500’s (1.5%), digital asset volatility remains high.
Korean Traders Most Adventurous
After a hiatus in Q3/18, trading in South Korea seems to be back in full swing and, as in previous quarters, Koreans are by far the most adventurous traders in the world. In any other reference currency, Bitcoin (BTC) is by far the most traded digital asset and Ether (ETH) comes in second with considerable distance. In Korea however, every quarter a different cryptocurrency seems to be trending. In Q4/17, Bitcoin Cash (BCH) was particularly popular, in Q1/18 the attention shifted to Ripple (XRP) and in Q2/18 EOS was able to outshine Bitcoin. In Q3/18 Korean trading slowed down but still saw EOS and XRP activity on par with Bitcoin trading. Finally, in Q4/18 Zcash (ZEC) and Monero (XMR) were en vogue.
Considering only /BTC markets reveals an interesting finding. If we were to live in a world with Bitcoin as a reference currency, then 2018 was a great year for digital asset trading with global volume increasing from ₿130k/day in Q4/17 to ₿170k/day in Q4/18.
Put differently, trading crypto for fiat (KRW, USD, EUR, JPY, GBP and RUB) is becoming increasingly unpopular. Instead, direct trading from other cryptocurrencies such as Tether USD (USDT), BTC or ETH are on the rise.
Just one year ago, Tether USD (USDT) played an insignificant role in global trading. However, during the course of 2018, it gained quickly in popularity. After overtaking USD for the first time in Q2/18, it never looked back. In Q4/18, USDT was 2.5 times as popular as USD.
Frankly, 2018 was a disappointment for anyone invested in the digital asset space. Prices declined 70% or more and crushed the dream of Lambos for everyone. If HODL was the strategy for 2017, then SELL ASAP should have been the one for 2018.
When considering total trading activity, things already look considerably better. Despite the falling prices, 2018 saw a two-fold increase of global trading volume compared to 2017. After a phenomenal all-time high of trading activity in Q1/18, trading slowed down in Q2 and Q3/18 but is showing an upward trend in Q4/18.
Putting aside prices and trading, on a fundamental level, 2018 reached several important milestones towards permanent crypto adoption. The SEC clarified that neither Ether (ETH) nor Bitcoin (BTC) are securities meaning that trading them was not, it is not going to be, illegal for US investors. Google and Facebook (partially) reversed their bans on crypto-related advertising allowing legitimate blockchain companies to grow. Furthermore, crypto custody is constantly improving and, for the first time, deposits at major custodians are fully insured. Not at last because of these improvements large university endowments (Yale, Harvard, MIT and Stanford) started to invest in the digital asset space and classical brokerage firms such as BlackRock, Fidelity and Goldman Sachs are showing interest in adding crypto to their offerings.
In hindsight, it is more than clear that the hype of 2017 was unsustainable. Neither the technological nor the legal infrastructure was ready for the storm and once mass media jumped on-board to get each and everyone on the crypto ship the downfall was inevitable. As bad as this fall may have been for new investors it was a necessary and important step to gain enough attention from government, industry, media and academia to bring this technological revolution back on track to becoming a story of success.
*Data Acquisition and Data Analysis
All data has been obtained from cryptocompare, saved as an sqlite database, queried with pandas/SQL and visualized with infogram. All charts are interactive and can be customized by (un-)selecting items. When hovering over data points additional information is displayed. Selecting different tabs shows additional data sets. We excluded exchanges that reported unrealistic values.
The Evolution of the Digital Asset Market in 2018 was originally published in Blockchain at Berkeley on Medium, where people are continuing the conversation by highlighting and responding to this story.