Five factors that make 2018 a lucky year for cryptocurrencies

Crazy Review : This article is written by Dr. Julian Hosp, co-founder and president of blockchain startup TenX. He believes that 2018 will be the best year for cryptocurrencies so far, and cites five specific reasons to explain this view. Although the article seems to make sense, investors should remember that when making investment decisions, they should not only rely on the opinions of experts, but still make their own analysis and judgment. Hosp himself also reminded people to consider the risks.

Translation: Ina

In a previous article I wrote for CNBC, I explained why the cryptocurrency bubble could burst in 2018. Many people later asked me: If you are so skeptical about this space, why are you investing in it?

Let me be clear. I am someone who thinks of all the good and bad sides, and I think a lot of people are taking unnecessary risk: they either invest too much or too little because they don't do the proper analysis.

So I want to list five reasons why 2018 could be the best year yet for cryptocurrencies and why I’d like to continue investing heavily in the space.

1. Efforts to address expansion issues

Bitcoin is the most important cryptocurrency. Many government-backed currencies enter and exit the cryptocurrency space through exchanges with Bitcoin, so Bitcoin's experience will affect the entire market.

As of Wednesday, the coin’s market share was about 40%, but I estimate that Bitcoin’s share of the entire market will return to 75%.

I think Bitcoin has 150% upside potential in 2018.

Why? Because it is still dominant. It has the largest user base and the largest market. Of course, it still faces the challenge of scaling to gain more usage.

Bitcoin can currently only process six or seven transactions per second at most (with the "Segregated Witness" contract upgrade, it will only be 12 to 14 transactions per second), while credit cards can process thousands of transactions per second, so people's desire to increase Bitcoin's processing power is understandable.

This scaling challenge also leads to the problem of high transaction fees.

What is the solution? It’s what’s called a second-layer peer-to-peer off-chain network. Take the Lightning Network developed by Blockstream, for example, which allows transactions to be conducted off the blockchain, making transactions close to zero cost and increasing speed and scalability almost infinitely. And this is just the beginning. You can see that more and more nodes and channels are being established. It’s growing exponentially.

In the coming months, we will see a dramatic increase in transaction volume and more use of Bitcoin in these channels. What’s more, the Lightning Network does not charge any fees.

In other words, second-layer networks solve the scalability and liquidity issues facing Bitcoin. This could be a key reason why Bitcoin has surged in value this year.

At the end of 2017, I expected Bitcoin to fall to $5,000, but it could then climb to $60,000. The Lightning Network will have a major impact on this.

Other second-layer network projects such as Rootstock can perform Ethereum-like computations through Bitcoin.

These exciting projects could send the price of Bitcoin up significantly. I’d say between 60% and 70%, and possibly over 100%.

2. More large-scale legal ICOs

As in the past year, ICOs will continue to affect the Ethereum network, as ICOs usually require large amounts of Ether. This will support demand for Ether. More legitimate ICOs, such as those by Kodak and messaging app provider Telegram, will lead to greater interest in Ether.

That means we could see Ethereum, which had a market cap of less than $90 billion as of Wednesday, rise to $200 billion by the end of the year. The price of one ether could double to $2,000.

While other platforms may realize similar gains, I believe Ethereum will be the primary focus.

3. Regulation

Many people believe that regulation harms the market, which is a short-sighted view. In the long run, companies need regulations to ensure legal stability and clarity. Regulation can make users and institutional clients feel confident in investing.

This is what happened when Japan started regulating Bitcoin. The market initially fell but eventually rose. The same thing happened in Australia.

Other countries can follow the same rules, and while I think we will see something like South Korea and many other countries, the fate of their markets will be no different than Japan and Australia.

4. Many implementations and uses

There are startups like my own TenX that offer debit cards to help people spend their cryptocurrencies.

This means that the number of users and merchants in this field will increase significantly in 2018.

This will enhance the reputation of cryptocurrency and more and more companies will believe in it. The companies that perform well this year will stand out, a few will thrive, and others will fail, but people will only pay attention to the winners and ignore the losers.

Most startups fail, but the huge successes of companies like Facebook and Airbnb overshadow those failures. Similarly, the success stories of some companies in the cryptocurrency space will overshadow a few negative bankruptcies.

5. Institutional Investors

The final reason is that 2018 will be the first year that real institutional money will flow into this ecosystem.

An estimated $10 billion to $12 billion has flowed into the cryptocurrency ecosystem, but that’s nothing compared to the amount of money coming in from institutions, which could easily double the market’s value this year, given that previous funds have already increased the market’s value to around $500 billion.

Summarize

All in all, these five factors are not 100% certain to occur, but I still think there is a 70% to 75% chance that they will occur, and each of them could increase the overall size of the market by 50% to 100% - perhaps even 200%.

Put these factors together and the market could rise to seven or eight times its current level. While the gains may not be as large as in 2017, they will certainly be much higher in absolute terms. This could make 2018 the most successful year ever for cryptocurrencies. Moreover, the growth could be achieved on solid fundamentals, not hype or expectations.

That being said, readers should not read this as investment advice, but rather read my analysis of the potential risks. If you ignore the real risks, you may get hit by surprise.