What a difference a year makes. One year ago, cryptocurrencies were confounding all expectations. The value of a single bitcoin reached $16,477 in January 2018, with little sign of falling. A year later and those caught up in the wave of hysteria will feel disappointed. The price of bitcoin has fallen to below $4,000, and its long-term future is very much in doubt. Many analysts believe even the $4,000 figure is too high.
The market has been dogged by allegations of market manipulation, with claims that the price of bitcoin had been artificially inflated with another cryptocurrency, Tether. The US Justice Department is investigating.
Then there's the money laundering concerns that have been there from the very start. Estimates suggest that since 2009, more than $2.5 billion has been laundered through bitcoin. A regulatory crackdown on this has contributed to a decline in its overall value – which some argue illustrates just how much money laundering was going on.
And if all of that isn't enough to tempt you to part with your hard-earned cash, there are fresh concerns now about wallet security. The death of Canadian crypto exchange QuadrigaCX's founder, Gerry Cotton, in December means its investors can no longer access their money. Bizarrely, Cotton took sole responsibility for handling funds. There were no records left to reveal the passwords to the laptop that contained the cold wallets – those stored offline – meaning that investors are now unable to access their money. More than $150 million worth of bitcoin is effectively locked away.
Predictably, there are conspiracy theories around his death. Cotton's will was updated two weeks before his death, and in the weeks leading up to it, users were experiencing payment problems.
Regardless, a company handling such a huge amount of money cannot operate in this manner. There is no regulatory framework for cryptocurrency firms and, as a result, they all operate in slightly different ways. Some, like Coinbase, operate as a standard investment vehicle would. This increases the compliance requirements for both company and investor, but provides more safeguards. Measures such as storing funds both offline and online, and requiring extensive background checks for investors, help to minimise the risks that have plagued the sector.
Many, but not all, smaller exchanges simply do not have these kinds of safeguards in place, and choosing an exchange of this kind would be an enormous risk. Yet despite numerous examples of exchanges failing to protect funds, no regulator has been forthcoming with a framework that would protect investors –despite 2018 being a record-breaking year for crypto hacks. Japanese cryptocurrency exchange Coincheck lost over $500 million in January 2018, which was attributed by some to a lack of cybersecurity personnel.
Now many retail investors view crypto as simply too risky – and this change in sentiment is reflected in the price. This could unfortunately be the beginning of the end rather than the end of the beginning for crypto.