2016: The Year of REKT

Significant 2016 Events

  • Bitcoin reached 3-year highs; then lost 20% in minutes.
  • Significant cryptocurrency heists totaling to almost US$160M in assets.
  • Vitalik changed his name to Sir Forks-A-Lot.
  • Sterling traded at 30 year lows.
  • Oil hit a 13-year low, then doubled.
  • China cracked down on capital flight, causing USDCNY to hit fresh local highs.

2016 was the year where cryptocurrency traders were made or destroyed.

Bitcoin started 2016 at a price of $430. It traded sideways for 5 months before pumping to $789.7 in mid June. After the Bitfinex hack, it crashed to $600 where it remained range bound until November. Bitcoin on western exchanges ended the year just shy of $1,000, a 132% annual return.

Contrary to what the media tells you, Bitcoin was not the best performing currency this year. In fact, in Dollar terms, Monero rose 2,745%; the party started after it was adopted by several Darknet markets. The entire altcoin complex posted impressive YoY gains:

  • Ethereum, +770%
  • Factom, +390%
  • Ethereum Classic post fork, +215%
  • Zcash (using the first traded price on BitMEX as a reference), +210%
  • Bicoin’s little brother Litecoin, +29%

“Buy and hodl” appears to have been a good trading strategy, so long as you were not subject to any hacks. Almost US$160 million worth of cryptocurrency at current prices was stolen, the largest being 119,756 Bitcoin (currently worth over $123 million) from Bitfinex on August 2nd. The “hot wallet hack heard around the world” sent shockwaves throughout the community, and caused a 20% collapse in the price of Bitcoin. Further controversy arose over the 36.067% haircut that applied to all accounts, Bitcoin or not, to cover the losses.

Bitfinex was not the only exchange or protocol that was hacked. Gatecoin lost $2 million, and the almighty DAO lost $60 million at the time, which necessitated an Ethereum hard fork to bail-out investors. This hard fork then eroded faith in Ethereum, creating Ethereum Classic. Doh.

The initial success of the DAO crystalized fears about Bitcoin’s future survival. The DAO was the most successful crowdfunding campaign – ever. Over $150 million worth of funds were raised during its 28-day Initial Coin Offering (ICO) which ended in May 2016. The DAO’s light shined bright, and the Ethereum Foundation couldn’t resist trumpeting its success. They may have even bought a significant amount of the tokens during the ICO.

Unfortunately like many aspects of this industry, the hype was unwarranted. Only three weeks after launch a “recursive call” attack vector was exposed and the attacker made off with over 3.6 million ETH. This represented close to one-third of assets held in the DAO.

The Ethereum Foundation advocated a hasty hard fork of Ethereum to bail out DAO investors. Self preservation is a powerful force. The foundation faced possible legal actions (it is possible that illegal “securities” were sold to retail investors). A bigger motivator was the huge sum of money they possibly stood to lose via their thought to be DAO investment if there was no hard fork.

To their chagrin, the hard fork spawned the brother that never died. China decided that if they can’t have any say in pumping and dumping a currency, then they would back the original chain, now coined Ethereum Classic (ETC). ETC is now the currency of choice behind Bitcoin in China. ETC is now gaining more popularity, with Western exchanges (e.g. Coinbase) accepting their mistake and thinking about listing it. To their credit, Poloniex grasped the opportunity and listed ETC shortly after the hard fork. BitMEX followed a few hours later with a futures contract.

Zcash (ZEC) is 2016’s most spectacular pump and dump. Zcash rose from its original listing price on BitMEX of 0.025 XBT ($15 at the time), to a high of 3,299.999 XBT ($2.276 million) on Poloniex directly after the genesis block. It’s true, someone bought Zcash at a price of $2.276 million per ZEC. Granted, it wasn’t a whole coin.

In the end, Newtonian physics prevailed. Zcash became Zcrash. ZEC closed the year out at 0.048 XBT ($48), creating a whole new generation of bag holders.

Not all movements in this crypto bull market were organic. Brexit played a major role in pumping Bitcoin up 15% on Black Thursday / Friday. “There is no way the Brits will leave the EU” they said, and then the Pound crashed over 13% in a single session. It has since hit a low of 1.1145 and now trades at 1.2232.

The biggest global macro upset was the U.S. Presidential election. The number of celebrities vowing to give up their precious penthouse apartments in NYC and their luxurious beach-front mansions in Malibu upon a Trump victory have since gone into hiding. They now resort to ordering their Beluga caviar at home facing the harsh reality that no one cares what they think. Tough life.

The Trump Effect not only touched Bitcoin in that special place, but also economies globally. Federal Reserve chair, Grandma Yellen, continued normalising interest rates with a 0.25% hike of the Fed Funds rate. Since the election, the S&P500 rallied over 10%, the Dollar continued strengthening (although not as much as Bitcoin), and market sentiment is the highest it has been in a long while.

Life is full of ironies. The “populist” candidate might be the saviour of American banker bonuses. Donald Trump is no Andrew Jackson.

China has played its part by cutting off a number of capital flight options over the last year in a frantic effort to cut the steady decline of the country’s reserves.

2017, The Year of the Chicken

The world is waking up to Bitcoin. Whether it is being used by only 100 merchants or 100,000, the general public is realising it holds value. Bitcoin has become the crypto reserve currency. This is why it remains on the Iron Throne. Whether you believe ETH and the smart contract war will outshine Bitcoin, you need to remember that most traded volume on ETH is done against Bitcoin. Traders buy Bitcoin to trade altcoins. 2016 started the ICO revolution. 2017 will no doubt have its own DAOsaster, and its own Zcrash.

The premium in China will stay strong as the Yuan weakens towards 8.00, pushing Bitcoin towards new ATHs. In an attempt to curb this, China will try to control Bitcoin, and fail.

This year will Japan will eliminate the 8% consumption tax on Bitcoin sales. This will boost its adoption as traders search for the next Pachinko hit.

The SEC might allow a US listed Bitcoin ETF. Although the Winklevoss ETF, COIN, has been delayed by over 3.5 years, the chorus calling for an outright decision grows. A hard rejection will not crush Bitcoin. In the slim chance the ETF is approved, the price should spike as Bitcoin traders front-run retail and institutional investors that will now be able to buy the cryptocurrency.

This all points to a exciting year for Bitcoin.