To get a sense of just how troubling 2018 has been for the cryptocurrency industry, one need look no further than bitcoin (BTC). Heading into 2018, bitcoin traded for close to $13,500 after reaching an all-time high of $19,783.06 in December of 2017. At the time of this writing, bitcoin is selling at $3,400, a loss of about three-quarters of its value — and other digital currencies aren't faring much better. Ethereum (ETH), for example, fell from an early-year high of $1,300 to $91 as of Dec. 17, 2018.

But cryptocurrencies like bitcoin and ethereum are hurting on more fronts than value alone. Investor interest in digital currencies has waned dramatically in recent months. Many early investors who were eager to make gains from the 'cryptocurrency craze' have since moved on to other ventures, leaving a smaller group of stalwart HODL-ers behind. But there are still reasons to believe that the cryptocurrency industry has some fight in it left. By some measures, institutional interest in digital currencies has actually increased over 2018. At the beginning of the year, investors asked how high digital coins could fly. Now, looking into 2019, the better question might be how this space will adapt in order to survive.

Key Takeaways

  • Bitcoin and other cryptocurrencies have emerged as a new asset class that has seen extraordinary returns over the past decade.
  • After reaching nearly $20,000 in early 2018, Bitcoin fell to just around $3,000 as the rest of the crypto market also fell.
  • 2019 has proven to be a year of recovery, with Bitcoin strengthening to above $10,000, but will the bull market last?
  • Several new developments such as increased institutional interest, pending ETF approval, and the popularity of stablecoins suggest a continued positive trend.

Institutional Investors Get in the Game

Although trade figures for individual investors are down in many cases, institutions are climbing on board in a significant way for the first time. Institutional investors allow for significantly larger trading volumes than most individual investors, meaning that even if there are fewer trading partners transacting in the digital currency space, the industry can still sustain itself.

There are several potential developments projected to take place in 2019 that could significantly impact institutional participation in the digital currency market. If crypto is floated on the Nasdaq or a similar exchange, for example, it will immediately get a boost in reputation — and likely, value.

The Elusive Bitcoin ETF

For years, crypto enthusiasts have pined for a digital currency ETF available to mainstream investors in the U.S. The U.S. Securities and Exchange Commission (SEC) has repeatedly rejected or delayed bitcoin ETF applications to be decided upon at a future date. One of the most talked about funds, by provider VanEck, has seen its final approval decision pushed back to February 2019.

Some analysts believe that the approval of a mainstream bitcoin ETF could provide a significant jolt to the digital currency world, opening up the industry to investors eager to participate without some of the risks associated with buying and selling tokens directly. As of now, though, the future of VanEck's fund remains to be seen.

Stablecoins Take the Lead

Stablecoins are digital tokens that are pegged to a fiat currency that act as hedging mechanisms against the potential decline of underlying cryptocurrency collateral prices — and they may just be the industry's best hope going into 2019. Stablecoins may see growth next year for two reasons: one, a result of the long-term instability of non-centralized tokens; and two, the current leader in the stablecoin industry, tether, is positioned to be dethroned.

As one of the earliest stablecoins to reach the mainstream, tether (USDT) has suffered a number of highly publicized growing pains while the sub-industry developed. Other stablecoins have already entered the field, aiming to wrench away its dominance.

What Do We Know for Sure?

While it's difficult to say which, if any, digital currencies will see dramatic price gains in 2019, we can say with confidence that cryptocurrency is not going away anytime soon. Blockchain, the underlying technology behind many cryptocurrencies, has spread far outside of the digital currency industry and is likely to see new applications this year. Governments and regulators will continue to grapple with how to best facilitate and control digital tokens.

It's possible that the heyday of cryptocurrencies has come and gone, but it's also possible that the crypto market still has a lot of upside to go. We do know one thing for sure: cryptocurrencies were once positioned to upend the entire financial system. That kind of noise doesn't disappear overnight, so expect to hear from cryptocurrency — or at least its number one fans — for another year at least.